Goldman Sachs 2013 Annual Report Download - page 38

Management’s Discussion and Analysis
Europe
In the Euro area, real GDP declined by 0.4% in 2013,
compared with a decrease of 0.6% in 2012. The
contraction was principally due to continued weakness in
domestic demand, primarily reflecting further declines in
fixed investment and consumer spending. Business and
consumer confidence remained at low levels and measures
of core inflation decelerated further during the year. The
unemployment rate remained elevated, particularly in Italy
and Spain. Political uncertainty in Italy and the debt crisis in
Cyprus temporarily increased market volatility earlier in
the year, while private sector lending conditions remained
very tight in periphery countries. To address these issues,
the European Central Bank decreased its main refinancing
operations rate by 50 basis points to 0.25%, and adopted
forward guidance for the future path of interest rates as a
new part of its monetary policy tools. The Euro appreciated
by 5% against the U.S. dollar. In the United Kingdom, real
GDP increased by 1.8% in 2013, compared with an
increase of 0.3% in 2012. The Bank of England maintained
its official bank rate at 0.50% and also introduced forward
guidance for the future path of interest rates, contingent on
the evolution of employment and inflation. The British
pound appreciated by 2% against the U.S. dollar. Long-
term government bond yields generally increased during the
year, except in the periphery countries where yields fell. In
equity markets, the DAX Index, the CAC 40 Index, the
Euro Stoxx 50 Index and the FTSE 100 Index increased by
25%, 18%, 18% and 14%, respectively, during 2013.
Asia
In Japan, real GDP increased by 1.6% in 2013, compared
with an increase of 1.4% in 2012. Growth was supported
by significant increases in private housing investment and in
public fixed investment. However, the trade balance
continued to deteriorate during 2013. Measures of inflation
turned positive during the year, but remain far from the
Bank of Japan’s newly adopted 2% inflation target. In
addition, the Bank of Japan, under new leadership,
introduced a new program of quantitative and qualitative
monetary easing, which included a significant increase in
the size and mandate of its asset purchases, as well as a
commitment to a more targeted communication strategy.
The Bank of Japan also changed its main operating target
for money market operations from the uncollateralized
overnight call rate to the monetary base, which is set to
increase annually by approximately 60-70 trillion yen. The
yield on 10-year Japanese government bonds fell by 5 basis
points during the year to 0.74%. The Japanese yen
depreciated by 21% against the U.S. dollar and, in equity
markets, the Nikkei 225 Index increased by 57%. In China,
real GDP increased by 7.7% in 2013, broadly in line with
the increase in the previous year, although impacted by less
supportive monetary policies and tightening financial
conditions. Measures of inflation remained moderate and
The People’s Bank of China kept the reserve requirement
ratio unchanged. The Chinese yuan appreciated by 3%
against the U.S. dollar and, in equity markets, the Shanghai
Composite Index fell by 7%. In India, real GDP increased
by an estimated 4.7% in 2013, compared with an increase
of 5.1% in 2012. Growth decelerated, primarily reflecting a
further softening in domestic demand growth and only
slight improvements in the current account balance. The
rate of wholesale inflation declined compared with 2012.
The Indian rupee depreciated by 12% against the U.S.
dollar, while, in equity markets, the BSE Sensex Index
increased by 9%. Equity markets in Hong Kong and South
Korea were slightly higher, as the Hang Seng Index
increased by 3% and the KOSPI Composite Index increased
by 1% during 2013.
Other Markets
In Brazil, real GDP increased by an estimated 2.2% in
2013, compared with an increase of 1.0% in 2012. Growth
accelerated on the back of increasing domestic demand and
fixed investment. The Brazilian real depreciated by 15%
against the U.S. dollar and, in equity markets, the Bovespa
Index decreased by 15% during 2013. In Russia, real GDP
increased by 1.3% in 2013, compared with an increase of
3.4% in 2012. This slowdown primarily reflected a decline
in domestic demand growth and a contraction in
investment growth, particularly during the middle of the
year. The Russian ruble depreciated by 8% against the U.S.
dollar, while, in equity markets, the MICEX Index
increased by 2% during 2013.
36 Goldman Sachs 2013 Annual Report