Macroeconomic context

The economic recovery in the United States slowed considerably at the start of 2011. This was largely due to a combination of temporary factors, including the upturn in oil prices and the longer than expected interruption in supply as a result of the earthquake in Japan. In addition, growing domestic and foreign fiscal uncertainty has contributed to slower quarterly growth in 2011 compared to 2010. The slight upturn in economic growth in the second half of the year was not enough to boost significantly the expectations of business and consumers. Household deleveraging, global fiscal uncertainty, sluggish residential investment, and restrictions in credit conditions all continue to limit economic growth. Overall, growth slowed in 2011 to around 1.5% (the figure for 2010 was 3%).

The United States has not been immune to concerns regarding the state of public finances. Despite pressure at the beginning of the year to initiate a credible process of fiscal consolidation, solutions have been extremely partial. First there was the last-ditch agreement to extend the debt ceiling; then the failure of the committee designated to propose a binding deficit-reduction plan. In this context, the country’s rating was downgraded from its maximum level by one agency. Doubts about the strength of economic activity have led to a search for balance between long-term consolidation and the necessity of sustaining the economy in the short term. The result has been the proposal of measures particularly geared to job creation, though political negotiations have created difficulties for their implementation. Meanwhile, the Fed has given signs that its accommodative monetary policy will be maintained, and interest rates will continue to be low over the coming years. Concerns continue to focus on lowering the unemployment rate and improving the real-estate market, while at the same time maintaining inflationary expectations under control. High energy and food prices are putting pressure on inflation. However, domestic economic stagnation and the slowdown of the global economy have preserved core prices within the Fed’s implicit target range.

The dollar’s exchange rate (fixing rate) against the euro appreciated in year-on-year term, while the average rates have depreciated over the last 12 months by 4.7%. This means that the impact of the currency is positive on the balance sheet and business activity but negative on earnings. Unless otherwise indicated, all comments below refer to changes at a constant exchange rate.