GROUPAMA / 2019 Universal Registration Document

6 EARNINGS AND FINANCIAL POSITION Management report of the Board of Directors

6.1

MANAGEMENT REPORT OF THE BOARD

OF DIRECTORS

6.1.1

ENVIRONMENT

institutioncould bring. However,at this stage, the market does not anticipate a majorshift in this accommodative policy. In the United States, the manufacturingsector slowed significantly throughout the year, and the ISM index reached a low point in November. The trade dispute with China has reduced visibility in many industrial sectors. GDP growth has also slowed, but it remains more robust than in Europe, decreasing from +3% on an annualised quarterly basis in the first quarter to +2% in the third. Inflation remains contained within the Federal Reserve’s targets, while the labour market continues to be dynamic with unemploymentwell below 4% of theworkingpopulation. It was thereforemainly on the basis of expectationsof deteriorating growth that the US central bank (the Fed) changed its monetary policy stance. As the Board of Governors anticipated policy rate hikes at the beginningof the year,a consensusemergedstartingat the end of the first quarter to take “pre-emptive”action in view of the downturn risks. During the summer, an initial decision was taken to lower key rates and begin a new asset purchasecycle. In the second half of the year, the effective Fed Funds rate therefore decreasedby 85 basis points to 1.55%, while the bank’s balance sheet size further increased by$350 billion or 10%. Although they continue to grow, emerging countries have been affected by the decline in world trade, particularly in Asia. The impact of the China-US trade war was reflected in the leading indicators of the manufacturing sector for all emerging markets. PMI indices fell to their lowest levels since 2009. However, China has been successful in managing the gradual slowdown in its growth through monetary and fiscal stimulus measures. Nevertheless, the reversal of the Fed’s monetary policy remains good news for emerging markets, whose borrowing rates in local currencies anddollarsare falling significantly.

Macroeconomic environment 6.1.1.1 The deteriorationin leadingeconomicindicatorsobservedsince the end of 2018 led to a downward revision of medium-termgrowth and inflation expectations in developed economies. These downwardrevisionshave fuelled the very accommodativestance of central bankers, which led to a sharp decrease in interest rates in both the eurozone and the United States. Developed economies are now seeing a moderate rate of growth, and the risk of a recession in the medium term is increasing. In the eurozone, quarterly growth remains below 1% on an annualised basis. European industry is also being negatively affected by the slowdown in world trade and the recession in the automotivesector. However, householdconsumptioncontinues to be supported by the improved labour market and an unemployment rate falling to 7.5% of the eurozone’s working population. Inflation remains well below the +2% target: the underlying index (excluding volatile food and energy components)is stagnant at an annual rate of around 1%. Market inflation expectations declined significantly overthe year. The slowdownin growthand the inflationsituationled the European Central Bank to abandon the prospect of gradual monetary tightening. It even returned to an expansionary policy by announcing a 3 rd  TLTRO (Targeted Long-Term Refinancing Operations)programme,cutting the deposit rate by 10 basis points to -0.5%and resumingits asset purchaseprogrammeof €20 billion per month for an indefinite period. It is too early to assess the changes that Christine Lagarde’s appointment as head of the

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Universal Registration Document 2019 - GROUPAMA ASSURANCES MUTUELLES