Hornbach-Baumarkt-AG Group

GROUP MANAGEMENT REPORT Macroeconomic Framework 37
Alongside declining demand from outside Europe, the poor
performance of the European economy in the course of 2012
chiefly resulted from home-made problems in the euro area.
Consumer, business and investor confidence all clearly took a
knock from the intensification in the crisis in the summer of
2012, as is apparent in, among other sources, the sentiment
indicators calculated by the European Commission. Both
consumer confidence and the business confidence index
plummeted from the spring through to the fall of 2012. Consistent
with this picture was the weak level of domestic demand,
the primary cause of the recession. Gross fixed capital
formation fell sharply in the euro area, reducing by a quarterly
average of around four percent compared with the respective
previous year’s period. In particular, this reflected a sharp
drop in output by more than five percent in the European
construction industry. In terms of the countries where HORN-
BACH operates, the downturn in construction output was
especially severe in the Czech Republic (minus 6.6%), the
Netherlands (minus 8.6%) and Slovakia (minus 12.3%). This
was the result not only of restrictions on housing construction
activity and uncertainties surrounding fiscal support for real
estate, but also of reductions in public and commercial construction
investments.
Not only that, given rising state duties, shrinking real-term
incomes, rapidly rising unemployment, and a widespread
feeling of uncertainty, private households remained unwilling
to spend. Private consumer spending contracted by more than
one percent within the twelve-month period. Accordingly, realterm
retail sales fell by 0.9% in the European Union and even
by 1.8% in the euro area in 2012. Five of the nine countries in
HORNBACH’s store network – Germany, the Netherlands,
Austria, the Czech Republic, and Slovakia – witnessed a
contraction in real-term retail sales. The Eurostat figures
show positive growth rates for Luxembourg, Romania, Sweden,
and Switzerland. Indicators available from trade association
surveys show that in most European countries demand levels
in the DIY store and garden center sector, i.e. in the DIY retail
sector, fared less favorably in 2012 than in the overall retail
sector.
German economy proves resilient
The German economy successfully held the European recession
at bay for large parts of 2012 and notwithstanding difficult
macroeconomic omens managed to post moderate growth.
According to figures released by the Federal Statistical Office
(Destatis), real-term gross domestic product was 0.7% higher
than in the previous year (calendar-adjusted: 0.9%). However,
Europe’s largest economy ran out of steam towards the end of
2012. Fourth-quarter real-term GDP adjusted for seasonal and
calendar factors shrank by 0.6% compared with the previous
quarter. Despite generating positive growth in each of the first
three quarters of 2012, the German economy consistently lost
momentum.
The key factors influencing domestic demand, and thus the
most important means of assessing the underlying framework
for German DIY stores and garden centers, as well as for the
builders’ merchant business, showed disparate developments
in 2012. According to the harmonized consumer price index
(HCPI), the annual inflation rate rose by 2.1%. As real-term
incomes rose faster than inflation in 2012, as had also been
the case in the two previous years, private households had
increasing spending power. Adjusted for inflation, private
consumer spending grew by 0.6%. Consumers were thus a
source of only modest momentum. GfK consumer surveys
nevertheless pointed to consistently positive consumer confidence.
This was chiefly due to the robust situation on the
labor market and substantial income growth. On the other
hand, capital expenditure in Germany in 2012 fell notably
short of the figure for the previous year. That applied not only
to investments in equipment (down by 4.8% in real terms),
but also to construction investments. Following strong priceadjusted
growth of 5.8% in the previous year, these then
contracted by 1.5% in 2012. Overall, construction activity in
Germany showed a divided picture. In real terms, housing
construction investments grew year-on-year by 1.5% in 2012,
while non-housing construction fell by almost five percent.