Global economy

The world economy grew robustly overall in the first half of 2007, although growth rates varied from region to region. Financial market turbulence induced in summer by the US subprime crisis added perceptibly to economic uncertainty in the third quarter. The massive rise in oil prices in the year to date has so far not had any negative impact on global economic development.

The US economy showed itself to be very weak at the beginning of the year but GDP growth pulled ahead strongly in the second quarter. The economy was visibly held back by an ongoing downturn in the residential property market, where the weak part of the cycle will probably be extended by the subprime crisis. In view of the increased risks to the economy, the US Federal Reserve cut its key interest rate in September by 0.5 percentage points to 4.75%.

The underlying upward trend in Japan continued. Strong impetus for GDP growth again came from exports. Private consumption also increased. China’s already very rapid GDP growth accelerated further despite attempts by the government to prevent the economy from overheating.

The euro zone saw very broad-based economic growth in the first half of the year, with a particularly strong rise in business investment. Towards the end of the reporting period, however, the recent financial market turbulence led to a noticeable drop in business confidence in the economic outlook. This prompted the European Central Bank to forego a further base rate increase. The base rate thus remained at 4% throughout the third quarter.

In Germany, private consumption in the first half of the year suffered due to a value-added tax increase. Strong impetus came from increased investment and exports, however. The main beneficiary here was industry, which was able to significantly increase production.