Future economic situation
During the period under review, the world’s economy limped along for the second straight year. The biggest problem was the ongoing sovereign debt and banking crisis in the eurozone. A gradual improvement began as the year progressed. At the same time, several key emerging countries caused a fresh set of concerns. In a reflection of this trend, growth in the three BRIC countries Brazil, Russia and India slowed markedly. By contrast, China has recently shown new signs of growth.
During the new financial year, the recovery in the eurozone will probably continue at a slow pace. Nonetheless, the process of consolidating sovereign debt continues to cloud middle-range prospects. This drawn-out activity will act as a drag on economic growth for years to come. Further setbacks cannot be ruled out. However, the risk that the crisis will take a renewed turn for the worse has eased. For 2014, we foresee moderate growth of 1 per cent.
As the economies of Western European nations slowly recover, prospects for Eastern Europe will brighten as well. The region continues to have a deep reservoir of growth potential. This is also the case in the emerging countries of Asia, which are likely to generate the strongest mid-range growth rates around the world.
Overall, we foresee further strong growth of nearly 3 per cent for the world economy in 2014 – compared with about 2 per cent in the reporting year and 2.4 per cent in 2012. The ultimate course of the economy will be shaped in particular by developments in the European financial crisis and the outcome of the difficult situation faced by emerging countries. As a result of the economy’s continuing below-average performance, we do not foresee any inordinate inflationary pressure in 2014.
During the year under review, the German economy began to gain momentum once again and grew at a rate that outpaced the Western European average. Leading indicators show that Germany’s economy is picking up speed, and economic conditions in the country are generally better than those found in most of the other Western European nations. Unemployment has hardly climbed at all during this period of economic weakness. Optimism among business and consumers is improving, and the amount of disposable income available to people is moving in a positive direction. For this reason, we expect a robust growth rate of 1.5 per cent in 2014, compared with about 0.5 per cent in 2013.
As a result of the positive economic conditions, we project that private consumption will generate a strong real growth rate of 1 per cent in 2014. In the process, retailing should generate a nominal growth rate of about 1.5 per cent. On a price-adjusted basis, this will mean another year of stagnation. As a result, the growth generated by retailing will most likely lag behind that of private consumption.
Compared with other European countries, the German economy is in good shape. It continues to profit from its favourable positioning and its high level of competitiveness.
Despite some signs of recovery, the economies of Western Europe continue to be overshadowed by the sovereign debt crisis. Given these conditions, these economies cannot be expected to generate increased momentum. Further setbacks experienced as part of the budget consolidation process cannot be ruled out. As a result, these economies will continue to feel a strong headwind. For the Western European economic region as a whole, we foresee slight growth of 1 per cent in 2014. 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 2014, we generally expect to see the economies of the crisis countries of Italy, Portugal and Spain stabilise. This should also be the case in the Netherlands. For most of the other countries of Western Europe, we expect that growth will total slightly above 1 per cent.
For retailers, short-term business conditions will remain tough. The main causes of this situation are austerity measures and record unemployment rate in many countries. For this reason, we foresee, on average, only a small increase. On a price-adjusted basis, however, this will result in another drop in retail sales. In light of the very modest rise in demand, inflation is expected to remain within the corridor of 2 per cent laid down by the European Central Bank. Food prices are likely to settle down following a sharp rise in the reporting year.
The gradual economic recovery in Western Europe will arrive somewhat later in Eastern Europe due to economic integration. Nonetheless, the economies of Eastern Europe are still not achieving their full growth potential.
We expect that the gross domestic product (GDP) of the entire region will climb by a real rate of 2 per cent in 2014, compared with an average rate of about 1 per cent in 2013. As a result, growth will remain below the rates produced in the pre-crisis years. Just like Asia, the region continues to have great economic potential. For this reason, we think that Eastern Europe will generate stronger economic growth over the medium term.
Overall, Eastern Europe is a heterogeneous economic region. Among major economies in Eastern Europe, Turkey is most likely to produce the highest growth rate in 2014 – 4 per cent. This growth should be produced in spite of certain risks arising from the country’s high current account deficit and the devaluation of the Turkish lira that is related to this development. GDP growth of more than 2 per cent can be expected to be produced in particular by Russia, Poland and Slovakia. The growth rates for Bulgaria, Romania and Ukraine should be around 2 per cent. With an expected rate of less than 2 per cent, the growth generated by Hungary and the Czech Republic should lag behind other countries for another year. Hungary – with the exception of Greece – continues to have the highest level of sovereign debt as a percentage of GDP. The economy of Greece is expected to contract for the seventh consecutive year.
Consumer demand in Eastern Europe continues to grow faster than the overall economy. For 2014, we expect that private consumption can rise somewhat higher than the overall economy will. We expect to see Russia and Turkey generate the highest nominal growth in retailing. Sales growth generated in these countries is expected to reach low double-digit levels, just as it did during the reporting year. This will partially be the result of inflation, which continues to be higher in Eastern Europe than in Western Europe: in 2014, consumer prices should rise at a rate in the middle single-digit range.
In the emerging countries of Asia, we expect to see increased economic momentum in the new financial year following a substantial slowdown in the reporting year. But there are still some uncertainties attached to these expectations. High current account deficits, particularly in India, and sharp devaluations of national currencies are weighing down national economies in the region. However, we assume that this is just a temporary phase of weakness. Following economic growth of nearly 5 per cent in the reporting year, we expect the emerging countries of Asia to produce growth rates of more than 5 per cent in 2014.
China should once again generate the highest growth, a rate of more than 7 per cent. Growth in the other emerging countries is likely to rise at a rate in the middle single-digit range. During the reporting year, Japan has fuelled growth by injecting massive amounts of government support into the economy. For this reason, GDP growth there is expected to slow somewhat during the coming year. Over the medium term, the country will still have to wrestle with its massive government debt, which will continue to expand as a result of the efforts undertaken in 2013.
In Egypt, economic expectations for next year remain muted as a result of the country’s ongoing political crisis.
Private consumption in the emerging countries of Asia should grow at roughly the same rate as the overall economy. For retailing, we project nominal double-digit growth rates once again during 2014 for China, India and Vietnam. The rise is also inflation-driven: consumer prices are rising at a high rate in emerging countries due to current account deficits and currency devaluations. In the saturated Japanese market, a slight rise in retailing is foreseen following a period of stagnation during the reporting year.
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.