The crisis in the U.S. real estate and mortgage market also had a negative impact on the international financial markets during the year under review. This was accompanied by recessionary trends in the U.S. economy, rising commodity prices and record oil prices. Together, these negative factors led to weaker levels of aggregate growth worldwide.

The outlook for the global economy has taken a significant turn for the worse in recent months. Many experts point to risk factors such as the turbulence on the financial markets, the weakness of the U.S. economy and high levels of inflation in many countries. Overall, the International Monetary Fund (IMF) expects the world economy to grow by 3.7% in 2008 compared to 5.0% in the previous year. In their “Joint Economic Forecast Autumn 2008,” leading economic research institutes (Joint Economic Forecast Project Group) revised downwards their forecasts, taking a more unfavorable view of the global economy. They now project significantly lower growth in global production of just 2.5% in 2008.

According to the Project Group, the German economy is also increasingly feeling the impact of these developments. For 2008, the Project Group anticipates real growth in gross domestic product (GDP) of 1.8% and believes there is a significantly greater risk of recession. Some experts are even of the opinion that Germany’s economy is already in recession.

With regard to the eurozone, the Project Group’s growth forecast for 2008 lies at approx. 1.0%. In its report it observes that a large number of factors – the situation on the real estate and financial markets and trends in exchange rates and commodity prices – are currently acting as a drag on economic growth, with the result that the eurozone is likely, in its view, to slip into recession.

In its assessment of prospects for Asia, the Kiel Institute for the World Economy (IfW) expects in its report “World Economy in Autumn 2008” published at the beginning of September, to see real GDP growth of 7.6% in 2008 – slightly below the 5-year average. It believes growth in China and India will slow down but, nevertheless, remain at a high level, although there are risks here, too, such as rising inflation in many countries.

The U.S. economy continued to suffer from the impact of the real estate crisis during the year under review. To stabilize the markets, the U.S. Federal Reserve cut its prime rate in several stages to 1.0%. The IMF expects the U.S. economy to grow by just 1.4% in 2008.

Unstable Currency Developments.

The fiscal year under review was marked by a very weak dollar against the euro. At the outbreak of the U.S. real estate crisis and at the beginning of fiscal 2007/2008, the euro stood at USD 1.42. As the crisis deepened, the exchange rate rose to a new high of around USD 1.60 by mid-July 2008, driven by interest rate differences between the United States and the eurozone. However, by the end of the fiscal year, the euro had lost most of these gains to reach its lowest point of the year on September 11 at below USD 1.39. At the end of the fiscal year it stood at USD 1.43.