2014 ANNUAL REPORT

Consolidated Financial Report |

DIRECTORS’ REPORT

2014 Annual Report

Prysmian Group

REFERENCE SCENARIO

MACROECONOMIC SCENARIO

The economic environment in 2014 was characterised by

uncertainty and rising geopolitical tensions in several areas

of the world, with a further slowdown in emerging market

economies (China, Brazil and Russia in particular) and in

Japan but a gradual recovery in North America (USA and

Canada), the United Kingdom and Germany. The economies

of several European countries such as Italy and Greece

continued to be stagnant or in decline.

Economic activity carried on expanding in the first part of the

year, despite some signs of weakness in emerging market

countries: in China because of the growing level of private

debt, in Russia because of the political and diplomatic crisis

with neighbouring Ukraine, and in Brazil because of sharp

economic slowdown. The macroeconomy gradually recovered

force in the United States andUnited Kingdom, but weakened

in some emerging market countries (Brazil, Russia) and

in Japan. Growth in the Eurozone remained subdued, with

asymmetries and disparities between the various countries,

despite the economic support measures implemented by the

European Central Bank such as the introduction of negative

rates on deposit facilities and several refinancing operations

to ease monetary conditions and support the provision of

credit to households and businesses. The European recov-

ery’s loss of momentum was also affected by growing uncer-

tainties about the political and financial situation in Greece.

Meanwhile, globally, geopolitical tensions steadily increased

in some oil-producing nations (Iraq and the Middle East),

thereby augmenting the risks of further economic slowdown.

In the last part of the year, economic activity accelerated

significantly in the United States, rebounding ahead of

expectations. The short and medium-term outlook for

the global economy has nonetheless remained uncertain

because of persistent weakness in the Eurozone and Japan,

the prolonged slowdown in China and the sharp downturn

in Russia, hit by economic sanctions imposed by the inter-

national community. The sharp fall in oil prices, triggered by

both greater supply and weaker demand, could help sustain

growth in the coming quarters, but not without risks for the

financial stability of the oil exporting nations.

The major international research institutes progressively

revised down their growth estimates for 2014 and 2015 over

the course of the year, confirming the growing uncertainties

around the globe. Despite the difficult political and mac-

roeconomic scenario, global demand in 2014 nonetheless

reported an overall increase: in fact, global GDP grew by

+3.3%* on the previous year (compared with growth of

+3.3%* and +3.4%* in 2013 and 2012 respectively), driven by

the significant growth achieved by Asia's emerging market

economies.

China, in particular, has confirmed a high growth rate

(+7.4%*), even if down from the previous year (+7.8%*) but

still a far cry from that in the recent past (+11.2% average

annual growth in the period 2006-2010), reflecting some dif-

ficulties in its domestic market. India too, after two years of

modest performance, returned to growth of more than 5%.

In the United States, positive signs on the domestic demand

front and a gradual decline in unemployment contributed to

an acceleration in growth on the previous year: GDP grew by

+2.4%* in 2014, up from +2.2%* the previous year.

Europe saw a slight improvement in economic activity,

albeit with specific idiosyncrasies in the different countries.

Eurozone GDP grew by +0.8%* on 2013, compared with

-0.5%* in the previous year, returning to expansionary mode

after two consecutive years of recession.

In the face of an uncertain geopolitical environment with growing tensions in various areas

of the globe, the macroeconomic scenario in 2014 was marked by a slowdown in emerging

market economies (China, Brazil and Russia) offset by robust recovery in the United States,

United Kingdom and India. Europe was still weak, although with signs of a slight recovery.

* Source: IMF, World Economic Outlook Update – January 2015