Macroeconomic and sectorspecific parameters1

The global economy continued to weaken in financial year 2015/16 compared with the previous year. Overall, it has not yet returned to a path of sustainable economic growth following the financial and sovereign debt crisis. Once again, the overall picture was one of considerable divergence among the different economies.

Following a particularly weak spell at the start of 2016, economic momentum in the United States increased only slightly over the course of the year, resulting in distinctly slower overall growth compared with the previous two years. The Western European economy, in turn, continued its moderate recovery. As before, growth was fuelled by lower oil prices – which, however, rose over the course of the year – and low interest rates. In spite of continued high public indebtedness and persistently weak investment activity, the region recorded positive growth, supported by overall solid private consumption. Developments in Eastern Europe remained divided, with generally stable growth in Central European countries on the one hand, and Eastern European countries whose economic developments remained overshadowed by the Russia/Ukraine conflict and the recession in Russia on the other. In Asia, Chinese economic growth continued to slow while the Japanese economy expanded only slightly. However, as a whole, the region continued to record the strongest growth rates of all regions in which METRO GROUP is active. At just over 2 per cent, overall global economic growth in 2016 fell short of the already weak growth rate of 2.5 per cent recorded in the previous year.

1 The numbers indicating the development of gross domestic product in the chapter “macroeconomic and sector-specific parameters” represent the entire years of 2015 and 2016. As such, the figures for 2016 represent projections. Unless otherwise indicated, the qualitative statements in the text refer to the reporting period.

In terms of political developments, financial year 2015/16 was overshadowed by an increase in terrorist attacks, particularly in Turkey, Belgium and France. In Turkey, the attempted military coup in July 2016 caused the government to declare a state of emergency. Since mid-June 2016, the United Kingdom’s vote to leave the European Union (Brexit) has dominated the political debate. The specific economic impact of Brexit will essentially depend on the outcome of the negotiations between the European Union and the United Kingdom over the coming years. Outside of the United Kingdom, the economic impact was very limited during the past financial year.

Over the course of financial year 2015/16, the euro stabilised against the US dollar following the strong devaluation in 2014/15. After appreciating over the first half of the year, the euro initially declined in response to the Brexit vote, but subsequently recovered slightly. In the reporting period, the Japanese yen is the only major currency of any METRO GROUP country that has appreciated substantially versus the euro. The Kazakhstani tenge, in turn, weakened significantly. The Russian rouble, the Ukrainian hryvnia and the Turkish lira also depreciated strongly again. As a result of the currency devaluations, the consumer prices in these countries rose markedly. Following gradual exchange rate stabilisation in Russia and Ukraine, inflation also began to subside in both countries. Meanwhile, prices were once again more or less stable across the rest of Europe as energy prices remained low and global demand failed to pick up. At less than 1 per cent, the increase in food prices was also moderate, but slightly higher than the overall increase in consumer prices.

In terms of the regions in which METRO GROUP is active, economic growth in Germany and Western Europe was largely unchanged from the previous year’s level in financial year 2015/16. As a whole, Eastern Europe returned to a slightly stronger growth path during this period. This was largely due to base effects in Russia. Following the abrupt downswing in 2015, economic output only shrank slightly until September 2016. Due to their strong ties to the Western European economies, the countries of Central Europe, in turn, recorded stable growth of just under 3 per cent in financial year 2015/16, only slightly below the level of financial year 2014/15. In spite of the declining momentum in China, Asian emerging markets grew once again faster than any other global region in financial year 2015/16.

Development of gross domestic product in key global regions and Germany
Percentage change year-on-year

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20151

20162

Source: Feri

1

Previous year’s figures may deviate from the Annual Report 2014/15 since final figures were not yet available at the reporting date

2

Forecast

World

2.5

2.1

Germany

1.7

1.8

Western Europe (excl. Germany)

1.6

1.5

Eastern Europe

0.1

1.2

Asia

3.7

3.7

Solid development in consumer goods retailing at a moderate level

Because of divergent economic development in the regions in which METRO GROUP operates, developments in the retail business were also mixed. In Western Europe, the continued economic recovery was reflected in robust retail sales. At just over 1.5 per cent, nominal growth was slightly higher than a year earlier in financial year 2015/16. In Eastern and Central Europe, mixed retail sales developments reflected divergent economic developments. While the Central European countries reported robust growth, price-adjusted retail sales in Russia and Ukraine fell markedly. Despite a slight slowdown, the emerging countries of Asia once again enjoyed the highest growth rates.

Germany

Retail sales in Germany remained stable in the reporting period. The continued decline in unemployment and higher disposable incomes in particular boosted private consumption and retail sales, which in turn supported overall economic growth. In price-adjusted terms, grocery sales recorded a slightly stronger increase than non-food retail sales. At the same time, online retail continued to grow and once again expanded its market share.

Western Europe

In Western Europe, growth was supported by low oil prices and lower interest rates. However, uncertainty related to the United Kingdom’s exit from the European Union and a series of terrorist attacks weighed on economic sentiment in the Western European countries. Public indebtedness also remained on the agenda. Overall, though, the Eurozone countries continued their modest recovery with growth of about 1.5 per cent in 2016. Thanks to the economic recovery, unemployment fell slowly but surely, supporting retail, which recorded nominal growth of just over 1.5 per cent. Growth was unchanged in price-adjusted terms due to lower inflation. In both Sweden and Spain, economic output and retail sales recorded above-average growth in excess of 3 per cent. The picture in Portugal was mixed with below-average economic growth but overall robust retail sales. On the other hand, Italy, Belgium and the Netherlands lagged in terms of both economic growth and retail sales development.

Eastern Europe

The Eastern European economies remained under pressure from economic weakness in Russia and the ongoing Russia/Ukraine conflict. As in the previous year, both countries recorded negative economic growth. However, overall economic output did not decline further towards the end of the financial year. The weak economy also depressed retail sales in financial year 2015/16. While above-average price increases resulted in slightly higher nominal retail sales, price-adjusted retail sales were sharply lower. Meanwhile, the Central European economies generally proved robust. As a result, retail sales also showed positive increases of more than 3 per cent in nominal terms in Poland, the Czech Republic and Hungary as well as in Bulgaria and Romania. Despite overall positive economic trends, retail sales growth was somewhat slower in Slovakia. Greece suffered another year of declining retail sales. In Turkey, terrorist attacks and an attempted coup resulted in significant domestic political tension, but only had relatively limited impact on economic growth and retail sales. Other sectors such as tourism and restaurants have felt the increased uncertainty more strongly.

Asia

The emerging economies of Asia once again posted the strongest growth in financial year 2015/16. However, overall growth in China has weakened. Meanwhile, India remained on its strong growth path, recording growth rates above 7 per cent for the second year in a row. Retail sales in both countries recorded nearly double-digit nominal growth during the reporting period. In India, however, higher prices account for half of this increase, although inflation moderated distinctly towards the end of the financial year. Despite continued expansionary monetary and fiscal policy, Japan’s economy failed to improve on the previous year’s subdued growth trend. As a result, retail sales also declined slightly.

Development of gross domestic product in METRO GROUP countries
Percentage change year-on-year

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20151

20162

Source: Feri

1

Previous year’s figures may deviate from the Annual Report 2014/15 since final figures were not yet available at the reporting date

2

Forecast

India

7.2

7.3

China

6.9

6.5

Pakistan

4.2

4.8

Romania

3.8

4.1

Luxembourg

4.9

3.5

Slovakia

3.6

3.4

Spain

3.2

3.1

Sweden

4.2

3.0

Poland

3.7

2.9

Bulgaria

3.0

2.7

Turkey

4.0

2.7

Serbia

0.7

2.4

Czech Republic

4.6

2.3

Croatia

1.6

2.1

Germany

1.7

1.8

Hungary

2.9

1.6

Switzerland

0.8

1.5

Netherlands

2.0

1.3

Belgium

1.4

1.3

Austria

1.0

1.3

France

1.2

1.2

Portugal

1.5

1.0

Italy

0.6

0.8

Japan

0.6

0.6

Moldova

−0.5

0.5

Kazakhstan

1.2

0.1

Ukraine

−9.9

−0.1

Greece

−0.2

−0.8

Russia

−3.7

−0.9