Groupama // 2021 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

However, the situation in the various countries outside Europe remains heterogeneous, particularly because of the health context. Asia is benefiting fully from the recovery in global demand with GDP expected to rise by +7.2% in 2021. China, for its part, was negatively affected by commodity shortages and by the continuation of its structural reforms, particularly in the property sector. Activity in Eastern Europe picked up with GDP in 2021 expected to grow by 6% compared with 2020. 6.1.1.2 The strong economic recovery resulted in investors’ appetite for risk assets, while inflationary pressures pushed up sovereign bond and credit rates. Changes on interest rate markets (a) Uncertainty about the inflation outlook, pandemic developments and central bank responses were the three main factors driving rate changes over the year. In the first part of the year, inflationary pressures put pressure on central banks for the first time and led to a rate hike. Epidemic recoveries and uncertainties about the persistence of inflation then caused rates to fall during the summer. From September onwards, the evolution of the inflation indices, the evolution of low wages, particularly in the United States, and medium-term inflation expectations led the central banks to send out more pronounced monetary tightening messages, which caused a resumption of rate increases. Financial markets in 2021

Macroeconomic environment 6.1.1.1 In 2021, the recovery of activity was significantly stronger than expected. Pressures on production chains and the soaring prices of certain raw materials (oil and gas in particular) contributed to the rise in inflation. This context put pressure on their accommodative monetary policies, forcing them to announce a gradual slowdown in asset purchases and subsequent rate hikes in 2022. At the same time, governments have continued to support the economy through stimulus plans (infrastructure and ecological transitions) or aid plans targeted at sectors affected by the pandemic (tourism, leisure), with the result that their debt has increased significantly. In the eurozone, after the contraction of GDP by -6.4% in 2020, growth was at 5.2% in 2021, with still significant disparities between Member States. France had a historically high GDP growth of 7.0% for 2021, while German GDP was only up by 2.7%. Member States maintained expansionary fiscal policies with a public deficit of around -7.1% of GDP for the eurozone as a whole. The European Commission forecasts a deficit of -7% of GDP in France, -9.4% in Italy and -6.5% in Germany. Europe is not immune to global inflationary pressures, even if they remain more contained than in the US. In December, consumer prices in the eurozone rose by +5% year on year. Visibility remains limited on a possible European interest rate hike cycle.

SOVEREIGN 10-YEAR YIELDS, %

2.0

0.0 0.5 1.0 1.5 2.0 2.5 3.0

1.5

1.0

0.5

0.0

-0.5

-1.0 -0.5

Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 -1.0

Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21

Germany

France

Italy

Spain

Japan

UK

US

Changes on credit markets (b) Investment Grade (IG) credit risk premiums are at historically low levels in a context of a clear improvement in the situation of companies. However, the slight compression of these risk premiums over 2021 did not compensate for the increase in the risk-free rate, so that the IG indices in the US and Europe recorded a slightly negative performance over the year.

In the speculative segment, the strong economic recovery is fundamentally improving the credit quality of borrowers. Risk premiums are tightening slightly so that the high carry allows the High Yield (HY) indices to generate a return of around +4% over the year.

118 Universal Registration Document 2021 - GROUPAMA ASSURANCES MUTUELLES