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Deutsche EuroShop - Annual Report 2006

History:

Macroeconomic Environment

The pace of Germany’s economic recovery accelerated in 2006. Gross domestic product (GDP) rose by 2.7% in Germany (previous year: 0.9%). After adjustment for the negative calendar effect - the year under review had two fewer working days than the preceding year - the rise in GDP was 2.9% for 2006 (2005: 1.1% after adjustment for the calendar effect), the fastest growth rate since 2000.

Economy driven by exports

The positive development of the German economy over the past two years has primarily been driven by continuing high export surpluses. In spite of the euro’s sharp appreciation against the US dollar, demand from abroad continued unabated and caused double-digit growth in exports (+12.4% in real terms). According to information from the Federal Statistical Office, the share of net exports in GDP growth in the financial year under review amounted to 0.7 percentage points. In 2004 this figure was 0.4 percentage points.

Domestic demand gathers momentum

Unlike in previous years, the domestic economy also gathered momentum in 2006. Investments in construction and capital goods expanded fairly rapidly. Not only capital expenditure, but also consumer spending rose in Germany, driven by modest wage increases (+1.8%) and a small decline in the savings rate (from 10.6% to 10.5%): Private consumption, which accounts for 59% of nominal GDP and is therefore its most significant component, increased by 2.1% after two virtually flat years.

Gross domestic product

Seasonally and working-day adjusted

Gross domestic product (Seasonally and working-day adjusted)

Inflation at 1.7%

The consumer price index declined in 2006. Averaging 1.7%, annual inflation was below that of the previous year (2.0%). The development in inflation in 2006 was mainly driven by energy prices. Domestic energy and fuel prices rose by 8.5% and drove prices upwards for almost the entire year. Excluding the effect of energy prices, the average inflation rate would only have been 0.9%.

Situation on the labour market brightens

On an annual average, the unemployment rate fell to 10.8% (previous year: 11.7%); 4.49 million people (previous year: 4.86 million) were out of work. This significant decline in unemployment primarily reflects a cyclical increase in employment liable to social security contributions.

EMU economy expands

The European Monetary Union (EMU) experienced a strong economic upturn in 2006. According to the Statistical Office of the European Communities (Eurostat), GDP grew by 2.6% in 2006 (previous year: +1.4%). After adjustments for calendar effects, it is estimated that growth would have been just over 0.1 percentage points higher. However, there were major differences between the various member states: while Ireland and Luxembourg reached growth rates of more than 5%,Germany (2.7%) again ranked among the poorer performers as regards economic development, ahead of France (+2.2%), Italy (+1.7%) and Portugal (+1.2%). The euro zone inflation rate in 2006 was 2.2%, similar to the previous year, and unemployment fell sharply to 7.8% (2005: 8.6%). Private consumption increased considerably. While Germany enjoyed its first upturn in years, growth in France, Spain and Italy was positively buoyant.




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