GROUP MANAGEMENT REPORT Outlook 95 These are positive conditions for the success of financial serv- ices providers, even though they will have no immediate effect on further business developments. Overall, the economic re- covery and the surge in the stock markets reduce the need for write-downs and offer improved business opportunities. The banks in particular should benefit from this situation. Asset management and the life insurance business are fa- vored by the worldwide demographic aging of societies and the problems it presents for state pension systems. Uncertainties about the future fiscal treatment of life insurance, for instance in Germany, are likely to provide an additional uplift for this business, at least in 2004. Equally uncertain from today’s perspec- tive is the further development of mandatory health insurance in Germany. While the private health insurers are negatively af- fected by the recently raised income limit for obligatory insur- ance, the new supplementary insurance plans introduced by the reform of the health care system have a positive effect. In gen- eral, the rising demand for property and casualty insurance opens up new business opportunities. But we do have to be pre- pared for the possibility that the adjustment of margins in in- dustrial insurance will not keep pace with the positive trend of the previous years – an outgrowth of intensive competition. In Central and Eastern Europe, we expect economic growth to be almost twice that of the fifteen E.U. countries, i. e. about 4 percent. The enlargement of the E.U. to the east will enable the economies concerned to reduce the wealth gap with the west faster than before. In this adjustment phase, which will continue over many years, the demand for insurance protec- tion, asset management and banking services will grow signifi- cantly, supported by the fact that the majority of these countries has introduced mandatory retirement savings plans. Asia should grow even faster than Central and Eastern Eu- rope, by about 6 percent. In this region, the pace and extent of the liberalization in China is a key factor for the business oppor- tunities of financial services providers. In Latin America, econo- mic fundamentals will also improve. We expect an expansion of just under 4 percent in this region. But this does not mean that we can expect the growth rates of the late nineties to return in 2004. At this time, it looks like the recovery will be curbed by considerable burdens of eco- nomic relevance, particularly the severe deficits in the U.S. budget and trade balance, and the high and still rising debt of American private households. On the whole, the U.S. economy should grow by at least 3 percent in the current year. For Eu- rope, we see an expansion rate of 2 percent, an average that even Germany – Europe’s weakest performer in recent years – should be able to reach. After the kick-start of the Japanese economy in 2003, we expect the country’s economy to grow by about 2 percent, i. e. considerably more than the average of the last ten years. The economic forecasts of the leading eco- nomic research institutes are by and large comparable. But we do have to be prepared for the eventuality that unpredictable events, such as a major terrorist attack, could obscure the cur- rently bright picture.  After most of the developed economies were either caught in stagnation or showed only modest growth in the last three years, the economic compass at the beginning of 2004 points to growth across all continents. Many of the overwhelming risks of the recent past – terror, war, SARS and accounting scandals – can by now be better assessed or pose no present danger. The relatively low prime interest rates in Europe and in the U.S.A.  foster growth and lend it support. Fueled by a more propitious economic environment and an overall positive mood, long de- layed investment decisions are put into practice, which lends even more substance to the economic upswing. Good prospects for financial services providers Positive economic outlook with persisting risks The economic prospects for 2004 are significantly better than in recent years. Growth is likely to accelerate in all regions of the world. That will also give new impetus to financial services providers, even though sizeable risks persist.