Earnings, Financial Position and Net Worth

Economic environment

The lowest point of the worst global economic recession seen since World War II appeared to be over at the end of the third quarter. Following on from a sharp decline in overall output in the first few months of this year and recessionary tendencies in the second quarter, the situation has meanwhile eased somewhat. Key economic leading and sentiment indicators are trending up, and new orders and industrial production have picked up momentum. Global economic activity, based on a stabilization of the financial markets, was, however, only able to return to normal levels on the back of massive intervention by central banks and government rescue packages. The side effects of these measures are naturally unknown so far. Moreover, in many countries brisk private consumption, which benefited from greater sales incentives and the decline in energy costs, had supportive effect. In their fall economic forecast for the year 2009 as a whole, leading authoritative economic institutes now put the decline in global economic growth at 2.5 %.

The euro area also bottomed out in the second quarter and, only a short time later, saw a notable recovery in business activity. A number of European countries such as, Germany, France, Portugal and Greece for instance, lifted their gross domestic product significantly, a key driver of this stabilization being an increase in the trade balance. Industries which were particularly hard hit by the recession also recorded the first signs of recovery. Production in the automotive industry, for example, was stimulated through government aid but can be expected to suffer renewed setbacks when the state subsidy programs expire. The collapse of macro economic production has left marked tracks on the labor market, especially if the number of workers in reduced hours are included. In their joint forecast the leading German economic institutes anticipate a decline in GDP of 3.9 % for the year as a whole.

At the beginning of the year Germany’s economic output initially mirrored the dramatic developments of the previous year. This was followed by a slight increase in new orders, industrial production and the gross domestic product in the second quarter. A variety of factors, such as declining energy prices, the high level of wage agreements and the vehicle disposal subsidy initially bolstered private consumer demand above all. The third quarter and then saw a strong recovery in macro-economic production from in parts very low levels, buoyed by growing demand from abroad. In the near future, economic packages designed to boost public-sector investment in construction can be expected to take effect on production. Since July, the assessment of the business situation by industry at large has also generally steadily improved. The ifo Institute for Economic Research currently expects the gross domestic product to decline by 5.0 % in 2009.

However, all economic indicators nonetheless signal that the recovery is starting from a very low base. Given the subsequent effects, it should take some time until growth returns to a more normal level.