Economic growth

In the second half-year of 2008 the global economy was dominated by the financial and property crisis and slowed considerably. The financial crisis worsened again sharply following the insolvency of several banks. In addition to substantial economic losses, this resulted in a breakdown of confidence in the financial markets worldwide. Financing conditions for companies and private households have similarly taken a turn for the worse. Billions in emergency funds were made available worldwide in response to this in order to ensure lending functions and combat the dearth of liquidity in the money markets. Furthermore, several central banks took concerted action to make sometimes massive cuts in their prime interest rates.

The effects on the real economy are nevertheless very tangible throughout the world. Many countries are in recession; some are on the brink of insolvency. In recent months, emerging markets have also been more severely hit by the turmoil on financial markets. This all took place in an environment in which the trend of the global economy to overheat in recent years had already prepared the way for a period of cyclical cooling down. According to preliminary figures global growth declined compared with the previous year to 2.3 per cent (previous year: 4.0 per cent), and is continuing to trend downwards. The state of the economy is a vital driver for air traffic and therefore also has a marked influence on the course of business and earnings development at the Lufthansa Group. Further comments on this subject can be found in the Risk report.

In the USA, the economic climate was determined by the worsening financial and property crisis, which resulted primarily in a credit crunch with negative consequences for consumer and investment demand. The US central bank and the US administration took wide-ranging measures. These included sharp cuts in interest rates, relieving banks of some of their credit risk and the preparation of a massive programme to stimulate the economy. Domestic demand faltered as a result of the crisis. Both private consumer expenditure, which makes up around 70 per cent of the gross domestic product in the USA and is therefore more important than in other countries, and industrial production sank sharply. The depreciation of the US dollar helped exports, which produced a slightly positive impetus. Economic growth of 1.3 per cent is forecast for 2008 (previous year: 2.0 per cent).

The economy also stumbled in the Asia/Pacific region, although countries there continued to exhibit varying rates of growth. Overall economic expansion in Asia dropped to 3.7 per cent compared with 6.4 per cent the previous year. Japan’s export-led performance was hit particularly hard by the global economic downturn and the rise of the yen. Exports to the USA in particular showed a sharp fall. In 2008 its economic growth came to a standstill, slowing from 2.4 per cent in 2007 to a forecast –0.4 per cent in 2008. The Chinese economy too has been affected by the global economic slowdown. In recent years growth rates have always been in double figures (previous year: 13.0 per cent), but for 2008 growth of a mere 9.0 per cent is expected. A sharp fall in exports became particularly apparent towards the end of the year. However, higher incomes meant that consumer expenditure remained robust.

In Europe, a drop in the growth rate to 1.0 per cent is expected for 2008, after 3.0 per cent the previous year. Here too, the worldwide financial and property crisis weighed on the state of the economy. While countries such as Ireland and Spain, which had previously experienced a property boom, were tangibly affected by the correction in property prices, other countries such as Germany and Austria felt the indirect and delayed effects of the crisis in the form of weaker overseas demand. Thus the German economy began the year positively, before sharply losing momentum in the second half-year as well. The mood deteriorated rapidly in the final months of the year. Although domestic demand still delivered slight growth, external trade has recently no longer provided any stimulus. Adverse price movements have largely depleted rises in income due to higher employment and greater wage increases. Overall, growth of 1.0 per cent is expected for 2008 (previous year: 2.6 per cent).