Groupama // Universal Registration Document 2022

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EARNINGS AND FINANCIAL POSITION Management report of the Board of Directors

6.1 MANAGEMENT REPORT OF THE BOARD OF DIRECTORS

6.1.1

ENVIRONMENT

6.1.1.2 Financial markets in 2022 The monetary tightening by central banks led to a sharp rise in interest rates and a reduction in the liquidity offered by the central banks through their asset purchases. This resulted in poor performances and high volatility both on the bond market, affected by the rise in rates, and risk assets, penalised by fears of a recession, the loss of relative attractiveness of yields compared with rates, and the context of reduced liquidity. In the eurozone, general inflation was up 9.2% in December, suggesting a slowdown after a peak of 10.6% in October, but mainly due to commodities. Thus, core inflation continued to rise to +5.2%, while inflation in the services component was at the highest level of the year at +4.4% in December. This trajectory therefore forced the ECB to accelerate its monetary tightening. In July, it ended the new asset purchase programme to reinvest only bond income and, like the Fed, raised key rates starting in July, ultimately increasing by 250 points between July and December. The ECB announced its intention to continue its rate hike cycle over 2023 and to maintain rates until inflation shows signs of a slowdown towards the 2% target. On the activity side, business confidence has eroded but does not suggest a marked recession at this stage. The manufacturing PMI ended the year at 47.8, while the services sector index was 49.8. In emerging countries, central bankers continued the monetary tightening begun in 2021. China maintained a strict lockdown policy and did not ease it until the end of 2022. This disrupted international production chains, while the Russian ‑ Ukraine conflict fuelled the rise in commodity prices. Emerging countries were proactive with regard to inflation and began their monetary tightening cycle in 2021. After the sharp rise in commodity prices in the first half of the year, these prices stabilised or even declined in the second half of the year. The actions of central banks and the less bullish trend in commodity prices helped limit inflation, which was comparable to what was observed in developed countries, with very significant disparities in some countries (such as Turkey and Argentina). China’s monetary policy remained much more accommodative because of a marked slowdown in growth in China. This weak growth stemmed from the continued vulnerability of the property sector and the management of the Covid ‑ 19 pandemic by the authorities, which led to strict lockdowns. The consensus of economists anticipated real GDP growth of 3% in 2022.

6.1.1.1 Macroeconomic environment 2022 was marked by a sharp rise in inflation, which forced central banks to raise their key rates more quickly than expected. Tensions on supply chains in China impacted by strict local lockdowns slowly eased over the year, and the Russian invasion of fuelled the inflationary shock amid growing geopolitical differences between the western and southern countries. In the United States, inflationary pressures were significantly higher than those expected by the US Federal Reserve (Fed), which forced it to raise its key rates quickly. Consumer prices accelerated upwards in the first half of the year, and annual inflation reached its peak between mid ‑ year and the end of the year according to the indices. This inflation fuelled wage pressures with private sector increases of 4.9% in 2022, while the unemployment rate was historically low at 3.5% of the labour force. The Fed therefore continued its monetary tightening at a very steady pace, with the key rate rising by 400 basis points over the year. The Fed governors expect this cycle to continue at a more moderate pace in 2023 with a rise in the Fed Funds rate limited to 100 basis points. This tightening policy has affected GDP growth, which is expected to be modest in 2022 and 2023 (around 0.5% according to the consensus of economists), with the risk of a shift into recession, which remains a central topic of market debate, coupled with control of the inflation trajectory. At this stage, the leading manufacturing and service indicators suggest a marked slowdown (December manufacturing PMI of 48.4 and the Services PMI of 49.6). In Europe, the nature of inflation and an environment of less pronounced growth led to a later reaction from the European Central Bank (ECB). Over the first quarter, inflation was mainly imported through the rise in commodity prices linked to the Russian ‑ Ukraine conflict, coupled with the drop in the euro against the dollar. The rise in commodities nevertheless spread to all value chains and the services sector, causing wage pressures and more structural inflation. Inflation levels varied widely across European countries, particularly because of differences in fiscal policy to cushion the energy shock and varying dependence on Russian energy. The harmonised index of consumer prices rose 6.7% in France and 9.6% in Germany year on year.

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Universal Registration Document 2022 - GROUPAMA ASSURANCES MUTUELLES