Economic environment

Measured against the forecast, 2019 was a disappointing year. The tariff war and complex Brexit negotiations had negative consequences, as uncertainties involving foreign trade dampened investment sentiment among companies, which in turn had a direct impact on demand for capital goods. The punitive tariffs imposed by the United States also had a noticeable impact on China’s export economy. That impact was felt by all countries and regions that are major suppliers to Chinese manufacturers, including the euro zone. The direct and indirect effects of the trade wars ultimately resulted in a decline in industrial production in the G7 countries. 

Despite the challenging situation in the process industry, overall economic growth rates nevertheless remained ­generally positive. The services and construction sectors provided welcome relief in many countries. A favourable employment trend and low interest rates led to greater household spending on the one hand and full order books in the construction industry on the other. 

The appearance of economic skid marks caused by the trade war led the major central banks to undertake a noticeable change in course. Whereas the 2019 forecast initially called for rising interest rates, suddenly interest rate cuts were on the agenda. The US central bank (Fed) lowered its benchmark rate by a total of 75 basis points in three increments. In the light of short-term tensions in the US money market, the Fed resumed its securities purchases during the autumn months of 2019. Commercial banks also benefited from extensive lending by the US central bank. Meanwhile, the ECB lowered its deposit rate by 10 basis points to negative 0.5 per cent. At the same time, it also resumed securities purchases in monthly amounts totalling EUR 20 billion. As for the Swiss National Bank (SNB), it did not change its monetary policy since interest rates were already at very low levels. In order to provide some relief for the payment of negative interest rates, the SNB increased the exemption amount for commercial banks. The ECB, meanwhile, introduced exemption limits for the first time. 

The Swiss franc again appreciated against both the US dollar and euro. The SNB’s unchanged monetary policy, in contrast to the Fed and ECB, played a decisive role.

2019 proved to be an excellent year for the stock market. Equity markets benefited fundamentally from robust ­private consumption, monetary policy easing and a de-escalation of the trade dispute between the United States and China. These factors led to the first signs of improvement in the business climate, reassured investors and paved the way for an unusually positive year-end close. 

From a global perspective, equity investors chalked up the strongest price gains since 2009. Based on the MSCI USA Total Return Index, US equity markets recorded their second-highest overall return in the new millennium. In that context, economic conditions were certainly favourable at the start and over the course of the year, but they were never unequivocally positive. 

The steadily worsening trade dispute between the United States and China generated immense challenges for the process industry. Not only did costs increase, production had to be relocated to other countries, including the United States, in order to maintain international supply chains. These relocations affected not only companies from China; producers and suppliers from Europe were also seriously affected. 

At the centre of the process industry was the already ­transformative automotive industry, and thus in particular Germany. It is therefore no surprise that the nearly 21 per cent return of Germany’s benchmark DAX index may seem very good, but it was the weakest cyclical recovery following a down year in the stock market since 1995.