Future economic situation
At the beginning of 2013, the world’s economy continued to experience of period of weakness that most probably will linger throughout the first half of the year. Generally speaking, this weakness is expected to impact all important economic centres – at various levels and intensities.
Thanks to steps taken by countries and the European Central Bank (ECB) in 2012, the situation in the eurozone has stabilised somewhat. As a result, the risks arising from the sovereign debt crisis have eased slightly. The measures being applied to reduce sovereign debt remain in place, however. This, in turn, dampens short- and mid-term economic expectations. At the same time, unemployment has climbed to record levels, and no reversal of this trend is in sight at present. In 2013, this development will sap purchasing power and weaken consumer demand. A difficult year is expected to lie ahead of eurozone members, particularly for Greece as well as the high-deficit periphery countries of Italy, Portugal and Spain. In the wake of the downturn experienced in the past year, we, like most economic research institutes, expect the economy to be on the verge of recession. Following a weak first half of the year, a gradual economic recovery is likely to begin in the second half of 2013.
Positive signals for the world economy are being produced once again by China. During the reporting year, the People’s Republic produced its lowest level of economic growth since 1999. But the Chinese government succeeded in giving the economy a boost by ramping up investment in infrastructure. At the beginning of 2013, Chinese industry reached a level of output not seen since 2011. Prices simultaneously moved upward. Overall, China can be expected to provide somewhat stronger growth momentum for the world economy in 2013. At the same time, there is a risk that the government’s economic policies could further enlarge the country’s construction bubble.
The United States could also generate some slight momentum for the world economy as it continues its recovery. At the end of 2012, a temporary solution to the budget fight over the so-called fiscal cliff was found. Had this agreement not been reached, a number of tax cuts would have automatically expired and government spending cuts would have taken effect. Such an event would have dealt a hard blow to the economy. Generally speaking, though, the US sovereign debt and budgetary policies will remain a risk factor as the year progresses.
In 2013, we believe that the world economy will grow by about 2.5 percent, a slight rise from the 2.3 percent increase produced in the previous year. For 2014, we expect the slow recovery to continue. But this recovery will depend significantly on developments in the European financial and economic crisis. As a result of the economy’s continuing below-average performance, we do not foresee any fundamental inflationary pressure in 2013. The performance of the retail industry will be hurt by the challenging economic parameters being shaped by the continuing effort to reduce sovereign debt and by high unemployment. For these reasons, the industry’s results may only rise slightly above the level achieved in 2012. We see dynamic growth only in the emerging countries of Asia, which remain robust in comparison to the fragile state of the world economy.
In 2012, Germany was unable to escape the grip of the eurozone crisis. Subsequently, its economy contracted in the 4th quarter. This period of weakness will most likely continue in the first half of 2013. But economic lead indicators are already pointing to a rebound. For the entire year, though, we expect only weak growth of around 0.5 percent (previous year: 0.7 percent).
The positive trends in the German labour market lost significant momentum in the second half of 2012. Given the recent weakness in the German economy, we expect the annual rate of unemployment will rise slightly in 2013. Overall, though, it will remain at a comparatively low level.
The challenging business conditions will hurt private consumption and retailing. By contrast, positive momentum will be generated by disposable income, which is likely to continue to rise in 2013. As a result, we expect only slightly lower nominal growth in retailing compared with 2012. On a price-adjusted basis, it can be assumed that a decrease will occur.
Despite its recent setback, the German economy remains in good shape in a European comparison. It continues to profit from good economic conditions and a continuing high level of competitiveness – in contrast to other members of the EU. For this reason, we expect the economy to pick up speed this year and continue moving upwards in 2014.
The economy of Western Europe will continue to be shaped by the sovereign debt crisis in 2013. Even though a slight stabilisation has been achieved in the eurozone, further setbacks can be expected to occur as work continues to cut sovereign debt. Added to this was the fact that many Western European countries remained in recession at the beginning of the year. Unemployment was at record levels, and government spending cuts were hurting the countries’ economies and consumers. As a result of the reductions and the negative short-term effects arising from them, only a slight recovery can be expected. For the entire economic region of Western Europe, we expect that, at best, 2013 will be a year of stagnation following the contraction seen in the previous year. In the process, the periphery countries being hit hard by the sovereign debt crisis and the more robust core countries will continue to move in different directions. In 2013, we expect the economies of the crisis countries of Italy, Portugal and Spain to contract. For most of the other countries of Western Europe, we expect that growth will total less than 1 percent.
Private consumption and the retail industry may stagnate, too, following the declines they produced in 2012. Record unemployment and the drain on buying power being caused by government cuts go hand in hand with a loss of consumer confidence. All these factors could dampen private demand for another year.
The economies of Eastern Europe are also being hurt by the weakness of Western Europe because both regions are closely linked to each other. In a reflection of this, the sovereign debt crisis in Western Europe has caused Eastern Europe’s export economy to slow considerably. Furthermore, direct foreign investment has fallen. As a result, the economic performance of Eastern Europe will primarily depend on a possible recovery in Western Europe. The growth prospects of countries with high levels of international debt will be significantly below those of countries with moderate levels. Overall, economic trends – like those in Western Europe – vary widely. For the entire region, we expect to see growth of more than 2 percent in 2013 following the 2 percent rate generated in 2012. Overall, growth will remain below the rates produced in the pre-crisis years. Like Asia, the region continues to have tremendous economic potential. For this reason, we think that Eastern Europe will generate strong economic growth over the mid-term.
As one of the region’s major economies, Russia is expected once again to generate the highest growth rate in 2013, followed by Turkey, which is slowly bouncing back from a relatively weak year. We expect the growth rate for each country to exceed 3 percent. For Poland, we foresee growth of 2 percent, a rate that demonstrates once again that the country is not tapping its full potential. The same can be said about Romania and Bulgaria. At a growth rate of nearly 2 percent, both countries are likely to expand more strongly than they did in the previous year. The Czech Republic and Hungary should produce only a slight gain of less than 1 percent in 2013 following the downturn both countries experienced in 2012. Greece will continue to bring up the rear as its economy shrinks for the sixth consecutive year. Boosted by a slow recovery in the second half of the year, average growth rates produced by Eastern Europe in 2014 are expected to exceed the levels achieved in 2013.
Consumer demand in Eastern Europe is growing faster than the overall economy. In 2013, the retail sector is expected to produce rates like those seen in the previous year. In the process, a slight counterbalancing effect should occur. Countries that have produced strong retail gains, including Russia and Ukraine, are expected to slow somewhat while the economies of countries like Romania and the Czech Republic that exhibited weakness in 2012 will slowly rebound.
Following a noticeable downturn in the emerging countries of Asia in 2012, we expect to see somewhat stronger economic momentum in 2013 and 2014. China is again viewed as the country with the most rebound potential. At the beginning of 2013, it was already generating high rates of growth in production, and its economy as a whole appears to be back on track for growth – while still facing the previously mentioned risks. After producing growth rates of 7.8 percent in 2012, China’s economy should expand by more than 8 percent in 2013. Vietnam and India also should generate some renewed momentum in 2013 and 2014 – following a slowdown in 2012 that, at times, was very pronounced. But this momentum should remain below the levels generated in the pre-crisis years.
Private consumption should track similar trends in economic growth. After producing substantially lower growth rates at times during the reporting year, this segment should generate higher levels of growth in 2013 and 2014. This growth – like that of the economy itself – will not reach the rates achieved in recent years. By contrast, retailing in China, India and Vietnam may in some cases generate double-digit nominal growth rates in 2013 and 2014.
In Japan, the downturn that began in the second half of 2012 will initially continue. In spite of a far-reaching economic stimulus package and an expected improvement in economic conditions in the second half of 2013, growth rates will likely trail behind the levels produced in the previous year. In this saturated market, the retail industry will experience another year of below-average growth. In 2014, we do not foresee any significantly higher level of growth due to the country’s structural problems.
In 2013, the economic situation in Egypt will probably continue to be hurt by the country’s continuing political uncertainty. Overall, though, we expect a slow economic recovery to occur.
Building on our forecast for economic and retail sector developments, the following section provides an overview of the resulting implications for individual sectors as well as our sales lines.