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Financials - Deutsche EuroShop

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GRoup MAnAGeMent RepoRt overview of the course of business<br />

The German economy thus continued the previous year’s recovery on<br />

a broad front in 2011. Over the course of the year, the momentum<br />

shifted from exports and equipment investments to private consumption.<br />

Investment in construction (particularly in commercial and<br />

residential developments) was also encouragingly high. The country’s<br />

budgetary situation was better than anticipated in 2011, due to very<br />

low interest rates and higher tax receipts.<br />

The German labour market continued to recover in 2011 as a result<br />

of the positive economic development, reaching a new record level<br />

of 41.582 million employed in November. According to information<br />

provided by the Federal Employment Agency, an average of<br />

2.976 million people were registered as unemployed during the year,<br />

some 263,000 or 8% less than in the previous year. The annual average<br />

unemployment rate fell from 7.7% to 7.1%. Using the internationally<br />

comparable ILO (International Labour Organisation) methodology,<br />

the unemployment rate in German fell by 1.1% to 5.5% from December<br />

2010 to December 2011.<br />

According to information provided by the German Bundesbank, gross<br />

pay per employee rose by 3.4% in 2011, the biggest increase since<br />

1993. Against a background of high employment and low interest<br />

rates, the propensity to consume continued to rise. The savings rate<br />

fell in 2011 to 10.9% of disposable income (2010: 11.3%). Private<br />

consumer spending, which accounts for half of GDP, rose by a nominal<br />

3.6% in 2011 (real: +1.5%). Spending on transport and communications<br />

in particular rose sharply by 7.8%, which in part reflects the<br />

significant rebound in car sales over the year.<br />

As measured by the consumer price index, the cost of living in Germany<br />

rose by 2.3%, a further increase in the rate of inflation compared<br />

with the previous years (2010: +1.1%, 2009: +0.4%) Inflation<br />

was above 2% in each month, thus lying slightly above the target set<br />

by the European Central Bank (ECB) of just under 2% p.a. The main<br />

driver of this higher rate of inflation was energy. The price of heating<br />

oil and other fuels rose by 13.9% in 2011, while that of household energy<br />

(including electricity and gas) increased by 9.5%. Stripped of the<br />

effects of higher energy costs, inflation was only 1.3%. Food prices,<br />

which rose by 2.8%, were also a driver of inflation. On the other hand,<br />

prices for clothing and footwear (+1.8%), rents (+1.2%) and personal<br />

care (0.5%) rose only moderately. The downward trend in prices for<br />

communication (-2.7%) continued in 2011.<br />

8 Des Annual Report 2011<br />

Economies performed very differently within Europe in 2011. On the<br />

one hand, countries badly affected by the sovereign debt crisis slid into<br />

recession. On the other, along with a few smaller member states, it was<br />

the two major economies of France and especially Germany that underpinned<br />

economic development in Europe. The economic outlook<br />

has deteriorated perceptibly over the course of the year. Economic<br />

output contracted in the final quarter of the year (EU and eurozone<br />

by -0.3% each). Compared with the previous year, economic growth<br />

was nevertheless positive in 2011 with increases of 1.5% in the EU<br />

and 1.4% in the eurozone thanks to the strong start to the year, only<br />

0.5 percentage points lower than 2010. The upward trend in prices<br />

has accelerated in Europe, with inflation rising on an annual average<br />

from 2.1% to 3.1% for the EU and from 1.6% to 2.7% for the<br />

eurozone. As a consequence of the problems in the euro crisis countries,<br />

the seasonally-adjusted number of unemployed rose by 751,000<br />

to 16.469 million over the year to December 2011. Using the ILO<br />

method, the unemployment rate rose from 10.0% to 10.4%.<br />

ECONOMIC CONDITIONS IN ThE INDuSTRY<br />

retail sector<br />

According to figures from the Federal Statistical Office, retail sales rose<br />

by a nominal 2.6% in Germany in 2011 (excluding vehicle sales). In<br />

real terms, i.e. adjusted for price differences, they rose by 0.9%. While<br />

food sales were up 0.2% on a price-adjusted basis, non-food sales rose<br />

by 1.6% in real terms. Almost all branches and sales channels recorded<br />

growth, although “textiles, clothing, footwear and leather goods” were an<br />

exception (real sales -0.3%).On the other hand, “furnishings, household<br />

appliances and building materials” achieved substantial price-adjusted<br />

growth of +2.6%, as did “other retail” (such as books and jewellery) at<br />

+3.2%. Looking at the sales channels, the trend away from “other retail<br />

involving goods of various types” (such as department stores) continued,<br />

with a real fall in revenue of 0.5%. On the other hand, sales in “Online<br />

and mail-order business” increased by 4.6% in real terms.<br />

According to estimates from the German Trade Association (Handelsverband<br />

Deutschland, HDE), the sector continued its recovery from the<br />

previous year and is therefore on a stable growth trajectory. The positive<br />

development in the labour market, higher incomes, low interest rates<br />

and the generally stronger propensity to consume benefited the retail<br />

trade in 2011. With around 400,000 companies and 2.9 million employees<br />

in the reporting year, the retail trade in a narrow sense (excluding<br />

vehicles, petrol stations, pharmacies) saw an increase in revenues of<br />

2.4% to € 414.4 billion (previous year: € 404.7 billion), representing<br />

16.1% of GNP or 57.4% of private consumer spending, according to<br />

information provided by HDE.

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