Opportunities and outlook report

Major global themes from the previous year continue to weigh on the outlook: the aftermath of tight monetary policy to combat inflationary pressures and less favourable financing conditions, as well as weak global trade and investment activity. Furthermore, geopolitical issues such as the Middle East conflict and climate-related effects can create volatility. Overall weak growth of 1.2% is expected for industrialised countries. For the USA, a downturn is forecast, which is partly to be compensated for by a slight revival in Europe. The weak growth phase in the industrialised countries continues to emanate to emerging and developing countries through international economic relations. Nevertheless, emerging markets are expected to grow at almost unchanged rates of 3.9%, as easing inflationary pressures should allow domestic demand to recover. In China, growth is likely to slow down gradually due to structural issues, thus reducing the stimulus.[1]

Global trade should experience partial normalisation in 2024 and grow slightly by up to 3.0%.[2] The trend should resynchronise more closely with global economic activity, as consumption is likely to move towards durable goods, and companies are likely to replenish inventories to prevent delays in delivery on major shipping routes. At the beginning of the year, there were uncertainties about international trade routes in connection with armed conflicts.[3] The strong growth contribution from the USA of the previous year is expected to be lower over the year, but the global demand contributions from the eurozone are expected to become more important. However, less stimulus will be expected from China compared to its strong pre-pandemic growth phase. Structurally dampening effects arise from re-shoring activities by multinational western companies. The transition to a greener global economy should support demand for environmentally sound products.[4]

Industrialised countries

While the US economy should expand the most in 2024 compared to other industrialised countries at 1.6%, tight monetary policy will leave its mark on the otherwise consumer-driven economy. Economic growth should accelerate in the second half of the year as inflationary pressures subside.[5]

In the eurozone, a subdued recovery should begin. The European Commission estimates that growth should accelerate to 1.2% in 2024. The lasting effects of the previous restrictive monetary policy will initially erode domestic demand, particularly in the investment sector, but will disappear over time. Export growth is expected to increase by around 2.5% amidst increasing foreign demand. Spill-over effects from China’s weaker growth are manageable for the eurozone, but are stronger for Germany due to a higher share of trade. On the other hand, lower energy prices have contributed to an improvement in eurozone terms of trade.[6]

The German economy should recover slightly, supported by lower inflationary pressures, rising nominal wages and a high level of employment. Lower inflation could also allow monetary policy to ease. Globally falling inflation rates and a return of purchasing power should help German good exports to expand more in line with the global economy in the future. After the decline in exports in the previous year, exports are expected to increase by 1.3% in 2024, thus becoming a growth driver. Overall, gross domestic product should increase by 0.9% in 2024.[7]

Emerging and developing countries

In emerging markets, aggregate growth of 3.9% should be close to the level of the previous year (4.0%). In contrast to the previous decade, there is a lack of firm growth stimulus from China. Growth drivers are expected to come from a slight pick-up in global trade and from domestic demand in many countries, supported by fading inflationary pressures. Nevertheless, high international financing costs are likely to weigh on financial room for manoeuvre, especially in low-income countries with low domestic capital mobilisation opportunities.

In terms of regions, Asia will continue to experience the highest growth rates. Although lower industrial stimulus comes from the Middle Kingdom, some countries can benefit as alternative international production chain locations. China’s forecasted economic growth of 4.5% would be the lowest of the last three decades, apart from the pandemic period. The Indian economy is likely to continue to expand at its highest rate among the large emerging markets, but is more domestically oriented than China. Weak US growth will be felt in Latin America due to tight trade relations. However, easing monetary policy may boost investment activity. In the individual countries, however, growth is likely to be inconsistent due to the different economic structures. Africa is expected to experience a modest acceleration in growth as resource-poor countries in particular should benefit from more moderate agricultural prices, including for fertilisers and grains. For the Middle East, the resulting conflict has increased uncertainty over growth forecasts.

Eastern European countries should benefit from the slight revival in the eurozone but show lower growth rates in international comparisons. Base effects must also be taken into account due to the comparatively higher level of development. In Turkey, the restrictive monetary policy will limit growth. Central Asia, particularly Uzbekistan, should benefit from infrastructure investment.[8]

Risks and positive stimulus

In addition to the consideration of the economic situation, for AKA’s business focus, it is important to assess the risks that arise from various international influencing factors. Among the biggest growth risks is persistent or re-increasing inflationary pressures in industrialised countries, which may delay monetary easing or lead to continued restrictive monetary policy. For some emerging markets, the risks of higher interest rates and a stronger US dollar lie in excessive debt servicing. In particular, geopolitical risks from Russia’s invasion of Ukraine or the Middle East conflict may be associated with volatility. In addition, a development resulting from various issues can inhibit growth expectations and global trade: further geopolitical uncertainties, in particular an escalation in relation to Taiwan, increasing geopolitical fragmentation, a significant deterioration in the real estate crisis in China, extensive election calendar with possible political changes in larger countries, uncertain trade routes and interruptions in energy supply, climate change, natural disasters and social upheaval.[9]

On the other hand, a resolution in the Russia-Ukraine war would create positive stimulus. A larger expansion of the raw material production volumes can further dampen the price development. An associated sharper drop in inflationary pressure can support a rate-cutting cycle for central banks, leading to stronger economic growth than forecast. Further positive effects would arise from productivity gains via transformational advances, partly accelerated by reconstruction funds, a strengthening of the international community, a relaxation of trade policy, stronger growth in the USA and China and the mitigation of further geopolitical conflicts.[10]

Opportunity report

The term “opportunities” is defined as the prospect of a possible future development or the occurrence of events that can lead to a positive forecast or deviation from targets for the company. In this respect, opportunities are to be understood as the opposite of risks.

Opportunities arise for AKA from the transition of the economy – towards more sustainability. The transformation measures in the economy offer additional new business opportunities for AKA.

Particularly in light of the constantly increasing geopolitical uncertainties, the securing of raw material is of particular importance for the German and European economy, since, without sufficient availability of necessary raw materials, among other things, no products for renewable energy generation can be produced, and no transition of the economy can succeed overall. There are additional opportunities for AKA in this regard as well.

Innovations in the field of artificial intelligence, even in a simple form such as machine translation tools, can generate more added value for AKA.

Additional opportunities arise for AKA through an expansion of the refinancing options, primarily characterised by the planned use of a deposit brokering.

Forecast of developments

In summary, AKA is planning a new business volume of around EUR 1.8 billion across all product groups for 2024. A key performance indicator (KPI) will be exchanged by the Supervisory Board for 2024. This concerns the previous KPI “PreWL + Intensive share of net exposure”, which exceeded the target value of 12.6% in the year with a value of 7.8%. This will be replaced by the new KPI “EL to EaD”. The new KPI consists of the expected loss (as LSP value without management adjustment) and the exposure at default (as value of the net exposure). In addition to the previous KPIs return on equity before taxes, cost income ratio (before and after IIB), return on RWAs, share of ESG score 4+5 in the net exposure and the total capital ratio, EL is now used for management in relation to the EaD (Fig 13).

The Supervisory Board sets the key performance indicators as targets for the Management of AKA. The review of target achievement and internal control is carried out based on the reporting (internal monthly reporting and risk report). The reporting for external parties is also carried out as part of the management report. The objectives of the Supervisory Board are based on the results of the multi-year business planning and are derived from this. These are consistent targets based on the approved planning.

Based on the opportunities and further developments shown, and taking into account the economic and geopolitical framework conditions, AKA also continues to assume a sustainable business model for 2024.

[1] Cf. The World Bank. Global Economic Prospects, January 2024. Washington, DC. URL: www.worldbank.org/en/ publication/global-economic-prospects. Short reference: World Bank 2024.
[2] Cf. World Trade Organization (WTO). Global Trade Outlook and Statistics. URL: www.wto.org/english/res_e/ publications_e/gtos_updt_oct23_e.html.
[3] Cf. European Central Bank. Economic report. Ausgabe 8 [8th ed.]/2023 URL: https://www.bundesbank.de/de/publikationen/ezb/wirtschaftsberichte
[4] Cf. ifo Institut. ifo Konjunkturprognose Winter 2023. URL: www.ifo.de/DocDL/sd-2023-digital-04-wollmershaeuser- etal-konjunkturprognose-herbst-2023_0.pdf. Short reference: ifo 2023.
[5] Cf. World Bank 2024.
[6] Cf. European Commission. European Economic Forecast – Autumn 2023. Institutional Paper 258. URL: https://economy-finance.ec.europa.eu/system/files/2023-12/ip258_en.pdf.
[7] Cf. ifo 2023.
[8] Cf. World Bank 2024.
[9] Cf. World Bank 2024.
[10] Cf. World Bank 2024