Economic environment

According to information from the International Monetary Fund (IMF), the global economy recorded real growth of 3.6% in 2017 (2016: +3.2%), primarily due to a major increase in world trade (+4.2% compared to +2.4% in 2016). Even though the price of oil (Brent) rose to an annual average of around USD 50 per barrel again, the economic upswing was robust enough that most key indicators nevertheless showed a positive developement. The global inflation rate rose to +3.1%, for example, while Europe in particular recorded decreases in both unemployment and new debt. Investments remained relatively constant worldwide with an increase of 0.5%. While decreasing around 1.0% in the emerging markets as a whole, they rose by 2.3% in Central and Eastern Europe (CEE) in 2017. After adjusting for purchasing power, real gross domestic product (GDP) increased 4.1% in the CEE countries in which VIG operates during the year just ended, and only 2.1% in the EU-15.

Due to its AA+ rating and a stable outlook from the Standard & Poor’s rating agency, Austria continued to obtain funding at favourable terms in international capital markets. At less than one per cent of the GDP, the increase in debt was also relatively small. According to information from the Austrian Institute of Economic Research (WIFO), the growth in real GDP doubled in 2017 versus the previous year from 1.5% to 3.0%. As in 2016, investment growth continued to be one of the two main drivers of economic growth. Foreign trade was the second main driver of economic growth in Austria. Total premium volume rose in the insurance industry, while continuing to decrease in life insurance due to the low interest rate climate. The good growth rates in property and casualty and health insurance more than compensated for the decreases that were recorded, particularly in single premium life insurance.

2017 was also a year of growth in the CEE region from a macroeconomic point of view. The 2 percentage point higher real rate of GDP growth in the region compared to the EU-15 indicates convergence towards the Western Europe GDP level. Large countries, such as the Czech Republic and Poland, which recorded somewhat weaker economic growth in the previous year recovered again in 2017 and grew +3.7% and +3.8% respectively, according to the calculations of the Vienna Institute for International Economic Studies (WIIW), along with, for example, Romania, which grew a respectable 5.7% in 2017 (2016: +4.8%). Bulgaria (+3.8%), Croatia (+3.0%), Slovakia (+3.3%) and Hungary, Slovenia and the Baltic states (all +4.0%), along with Turkey (+5.4%) also contributed significantly to the upswing. No CEE country in which VIG operates recorded economic growth that was significantly less than 2.0%. Although the effects of this consistently good economic growth were different depending on market circumstances, they consistently resulted in an increased demand for insurance products in the CEE region.

The generally favourable global environment is also due to the fact that many economic uncertainty factors, such as the low interest rate levels, Brexit negotiations, potential economic policy changes in major economies such as the US and China, and stabilisation in the Eurozone, that created major uncertainty just a few years ago have now largely been priced in.