Group Management Report

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Exchange rate, interest rate and commodity price trends

EXCHANGE RATE TRENDS

In 2022, the euro weakened against the US dollar on an annual average. The general strength of the US dollar benefited from expansion of the interest rate differential and the considerable uncertainty surrounding developments in the global economy. Specific factors in the eurozone such as safeguarding the energy supply as a consequence of the Russia-Ukraine conflict additionally weighed on the euro. The euro was almost unchanged against pound sterling on an annual average, partly because fiscal policy decisions in the United Kingdom generated movement in the financial markets and caused the euro to appreciate at the end of the year. Changes in the euro against the currencies of the emerging markets were mixed. In particular, the Turkish lira and the Argentinian peso lost value against the European single currency. By contrast, the Brazilian real and the Mexican peso were on average significantly stronger than the European single currency than in the year 2021. Other currencies that appreciated against the euro year-on-year were the Chinese renminbi along with the currencies of several emerging markets in Asia, in addition to the South African rand. For 2023, our planning anticipates that the euro will stabilize against the US dollar and gain slight ground against pound sterling and the Chinese renminbi. We assume that the Argentinian peso, Brazilian real, Mexican peso, South African rand and Turkish lira will depreciate to varying degrees. For 2024 to 2027, we expect that the euro will be stable against the key currencies, while the comparative weakness of the currencies in the aforementioned emerging markets will probably continue. However, there is still a general event risk, defined as the risk arising from unforeseen market developments.

INTEREST RATE TRENDS

The challenging macroeconomic situation as a consequence of the Russia-Ukraine conflict and the Covid-19 pandemic, but especially the high inflation rates, prompted a turnaround in monetary policy in many countries, with global interest rates reaching a relatively high level in fiscal year 2022. National central banks in nearly all of the major Western industrialized nations made corresponding adjustments to their key interest rates to counteract the comparatively high price increases in some cases. Interest rates were also raised in many emerging markets. The interest rate hikes by the US Federal Reserve and the European Central Bank were more extensive and quicker than anticipated at the beginning of the year. Whether there will be further changes in key interest rates in 2023 in the respective countries will depend firstly on further inflationary trends and secondly on the severity of a possible economic downturn. Overall, we expect interest rates to remain relatively high in 2023. For the years 2024 to 2027, we estimate that interest rates will persist at a relatively high level.

COMMODITY PRICE TRENDS

In the commodity markets, the Russia-Ukraine conflict was one of the contributory factors to in some cases significant price increases particularly during the first four months, while over the rest of the year the dampened global economic outlook put pressure on prices. As a consequence of the resulting imbalance between supply and demand, the increase in the price of many commodities and input materials during 2022 was comparatively high. In particular, energy prices in Europe recorded a sharp rise,due mainly to the high dependence of some European countries on Russian gas but also as a result of regional extreme weather in the summer months. Compared with the previous year as a whole, there was also a rise in the average prices of the commodities lithium, coking coal, crude oil, nickel, cobalt and aluminum. Exchange rate effects played a role in some cases, leading average euro prices for natural rubber, lead and copper to rise, while the price in US dollars fell somewhat. The price of the precious metals rhodium, palladium and platinum decreased on average over the year. Particularly given the continued uncertainty about future trends in the global economy, we expect the prices of many commodities to fall in 2023 with only isolated price rises. For 2024 to 2027, we expect the prices of most commodities to decline compared with 2023.