ALLIANZ GROUP 36 In 2003, the world economy once again suffered from exceptional  adversity. At the beginning of the year, the smoldering Iraq crisis and the subsequent war paralyzed  economic growth in almost all industrialized nations. Political unrest in other oil producing countries outside Iraq, terrorist attacks worldwide, and the SARS outbreak were causes of additional uncertainty and initially prevented the world economy from regaining its footing. In the second half, however, a worldwide recovery got underway. The economic expectations of companies and consumers alike were not met in the year under review. Germany experienced stagnation for the third year in a row, and economic growth in the European Union came to a meager 0.7 percent. The main reason for this economic slowdown was the Iraq conflict. It pre- vented the nascent optimistic undercurrent from budding, and put brakes on consumption and investment plans, even though the consolidation in businesses and households had well pro- gressed. The job market situation in the industrialized countries also remained tense and improved only in the second half of 2003, albeit very gradually in most cases. And yet, from a global perspective, there were hopeful signs of an impending recovery. At 2.2 percent, economic growth in Japan outpaced that of Europe (0.7 percent) for the first time in many years. With the economy expanding by 3.1 percent in the U.S.A., 2.7 percent in Australia and 1.7 percent in Canada, the industrial nations across all continents reached an average ex- pansion rate of 2.0 percent which is, on the whole, a tolerable figure. Positive impulses also came from the economies of Asia, which are rapidly catching up. Above all, robust growth in China (8.8 percent) radiated throughout the entire region, which increased its performance by an average of 5.8 percent. With a solid 5 percent growth, the East European economy also made remarkable progress. The lion’s share of this expansion, however, was due to a special effect in Russia, where growth accelerated to 6.4 percent, mainly as a result of higher oil prices. On the other hand, many other East European economies which are exporting to the West, felt the full impact of virtual stagna- tion in the European Union and registered only moderate growth. Latin America, which is still coping with internal prob- lems and suffered from the political crisis in Venezuela, re- bounded after the slump in 2002 and expanded by a modest 1.5 percent. Property and Casualty insurance This business segment was able to carry over its positive outlook from the previous year into 2003. It is favored by risk aversion on the part of customers and their readiness to sign up for insurance protection. Under these circumstances, property and casualty insurers in most business lines were able to impose rate adjustments corresponding to the actual risk. Higher premium income paired with only moderate increases of the claims ratio improved earnings across the mar- ket. But it became clear in the course of the year that property and casualty insurance continues to be an area of highly inten- sive competition, which in some cases made it impossible to en- force the necessary rate increases. Nonetheless, most insurers were able to improve their combined ratio. Disciplined cost management, risk-adequate pricing and, to some extent, more restrictive contractual conditions with clear coverage limits in- stead of unlimited risk transfers all helped to lower the com- bined ratio. Higher underwriting capacities on the part of rein- surers allowed primary insurers to spread their risks over a Sputtering recovery stifles financial services providers A weak start Real GDP growth  in % – 0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 2003 2001 2002 Germany France Italy Spain