MILLI RE 2023 ANNUAL REPORT

ECONOMIC OVERVIEW ACCORDING TO THE IMF ESTIMATION, GLOBAL ECONOMIC GROWTH THAT WAS 3.5% IN 2022 SLOWED DOWN SOMEWHAT TO 3.1% IN 2023. In 2023, the majority of developed and developing countries adopted tight monetary policies; rate hikes that central banks sustained as part of anti-inflationary struggle and the tightened financial conditions resulted in decelerated global economic activity. During the reporting period, the restraining effects of tightening monetary policies particularly upon the production of the manufacturing industry has been more evident in developed economies. Despite deceleration in global economic activity and inflation, hard landing has become a weaker possibility for the global economy as supply-side issues improved and employment markets maintained their resilient outlook. On another note, a few events point at the continual increase of geopolitical risks of a global scale, which include the Russia-Ukraine war that persisted in 2023, extensive sanctions imposed by Western countries against Russia, the Russian Government’s announcement of its withdrawal from the Grain Deal in July, and the turmoil in the Middle East and the Red Sea region that resulted from the Israel-Palestine conflict in the last quarter of the year. In 2023, the USA has been the scene to problems and bankruptcies associated with banks, and a debt ceiling crisis in the first half of the year. After hiking the rates by a total of 100 basis points over the first three quarters of the year, the US Federal Reserve System (the Fed) kept the interest rates unchanged in the 5.25%-5.50% interval in line with the anticipations in its three meetings held in September, November and December; hence the Fed indicated that the rate hike cycle has come to an end. CPI outpaced the projections in December in the US and hit 3.4%, while data pertaining to the course of economic activity in the country went up. In 2023, the US exhibited the strongest recovery among developed economies. The US economy remained strong as consumers continued to spend their savings from the pandemic period that drove private consumption expenditures up, and the labor market maintained its solid outlook and supported consumption with its low unemployment rate. Hence, the US economy outperformed the projections, registering a growth rate of 2.5% in 2023, following 1.9% in 2022. The European Union (EU) area has been the geography that most deeply experienced the loss of pace in global economy. The said deceleration was driven by the European Central Bank (ECB)’s monetary tightening that outpaced that of the US Fed’s, although it was initiated at a later date. Other contributors included weak external demand and shrank producer margins; declined consumer confidence; the persistent effects of high energy prices, and the vulnerability in the manufacturing industry that has a high sensitivity to tightened financial circumstances, as well as in investments. The European Central Bank (ECB) increased the interest rates by 200 basis points in total through the first three quarters of the year, followed by a break in rate hikes by keeping them unchanged in its October and December meetings, in line with the anticipations. In its December meeting, the ECB stated that the existing interest rates are considered to be at levels to converge inflation on the targeted 2% and that they would make interest rate decisions depending on available data. In alignment with the forecasts, the euro area ended the year with a CPI rate of 2.9% and the annual growth rate of the area economy slumped from 3.4% in 2022 to 0.5% in 2023. The European Commission projects 1.3% growth in 2024 in the area where economic activity is anticipated to recuperate gradually in the coming period. Having entered structurally low-growth period and having expanded by 5.2% in 2023, the Chinese economy attained its slowest annual rate increase since 1990, excluding the pandemic years, although it has surpassed the official government target of 5%. This low performance was largely due to weak consumption, liquidity problems triggered by the debt issue of local governments and the ongoing debt problems in the real estate sector, growing deflationist risks and global turbulence. 44 MİLLİ RE