MILLI REASURANS ANNUAL REPORT 2018

Milli Re Annual Report 2018 44 / Financial Status Advanced and emerging countries give signals of declining economic growth rates. Global economic growth started to slow down beginning with the second quarter of 2018, and this trend remained effective until the end of the year. According to Global Economic Outlook Report published in January 2019, IMF forecasted global growth rate for 2018 as 3.7%. Looking at the developed markets, despite the positive developments recorded in USA and UK, economic growth in Euro Zone and Japan started to slow down, while ongoing loss of momentum in Euro Zone’s economic performance reached substantial levels. In developing countries, declines in Asia and Eastern Europe growth rates were recorded while a limited upward movement was observed in Latin America. In 2018, US economy achieved a strong growth performance with the support of fiscal policies. In line with the expectations, Central Bank of the US (Fed) closed the year with four interest rate increases and 225 basis points of increase was recorded since Fed initiated the ongoing cycle of interest rate hikes in 2015. The impacts of Fed’s and central banks of other advanced economies’ continuing measures in normalization of monetary policies were very prominent on long-term interest rates. Although US 10 year bond rate, being 2.45% at the beginning of 2018, climbed up to 3.23% in mid-November with the effect of tighter financial conditions; it fell back to below 3% by the end of the year as concerns regarding the global economic growth started to prevail once again. The main factors behind the slowdown in economic performance were US policies, loss of speed in energy price increases as well as the geopolitical risks mainly attributed to Middle East. The upsurge observed in general commodity price index reversed in the second half of 2018 and the index declined by 6% in the last quarter of the year compared to the previous quarter. Industrial metal prices kept falling as a result of the assumptions that US trade restrictions would put a downward pressure on demand level. While core inflation level showed very limited upward trend in advanced countries, it fell down in developing countries. Italy’s budget deficit and the rising concerns about the government debt stock, temporary decline in the activity level of the German automotive industry as well as the ambiguity on Brexit stood out as the main contributors of the declining global risk appetite in 2018 with respect to Euro Zone. Compared to last year, capital flow to developing countries decreased as a result of the monetary tightening measures taken in the USA and Euro Zone. Capital outflow in these countries suppressed the local currencies against USD, setting ground for central banks tightening their monetary policies. In addition, fluctuations observed in some countries with higher macroeconomic fragility, like Argentina, caused economic sensitivity in other emerging economies to rise as well. In 2018, ongoing loss of momentum in Euro Zone’s growth performance became evident. ECONOMIC OUTLOOK