For the United States, we predict a relatively good growth rate (for a developed country), this year and in the following years (Figure 5). GDP is expected to increase by an average annual rate of just below 3 per cent for the years 2010–2012. Growth is expected to be slower for the euro area. The annual growth rate in the euro area is expected to amount to just below 2 per cent for the years 2010–2012. Although GDP growth is now underway and is expected to continue during the forecast period in both the United States and the euro area, it will be a long time until GDP returns to pre-recession levels. This means that resource utilisation will be low for an extended period of time. This applies not least to the labour market, which normally lags behind the development of GDP. In turn, this will restrain price and wage developments abroad for the next few years. I will return to this issue later on. There is also considerable uncertainty about the strength of the recovery. The upturn in the period immediately ahead will partly be driven by temporary factors such as the effects of highly expansionary fiscal and monetary policies and an inventory cycle. There is therefore a risk that growth will be dampened again when the stimulating effect of these temporary factors declines. Experiences from previous financial crises, as reported by Reinhart and Rogoff, the International Monetary Fund (IMF) and others, also indicate that the recovery following a financial crisis will be drawn out.
Transitional measures do not distort the solvency reality: they are designed to ensure a smooth transition to the new regime, avoiding disruptions in the market and allowing a certain period for companies to fully recognise the impact on old books of contracts that have been underwritten in a different regulatory framework’’. 2 I agree. For the benefit of investors, let me be crystal clear: when we consider whether or not firms are in a position to pay dividends, one of the main quantitative yardsticks we will use is capital levels after the benefit of transitionals. Now, investors taking a close interest may be concerned about the capital strain firms using the TDTP may face as the transitional benefit unwinds over 16 years. They are right to have an eye to that, but I would like to point out that there will be some off-setting benefit in the form of the release of the risk margin as the back book rolls off – it will be up to firms to set out this picture for analysts and investors, but it is the net adjustment we should be focussed on. For transitional measures to achieve their purpose there needs to be a shared understanding on some of the important practical details about how they will operate.