Mercedes 2009 Annual Report Download - page 108

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Economic risks
The world economy passed through the worst recession of the
post-war period in 2009. Although the economy bottomed out
in the summer, the recovery started only moderately. Against the
backdrop of the world economy’s very fragile condition, the
potential risks of a weaker economic development or even of a
setback are substantial. We see the main risks for the global
economy in 2010 in renewed turmoil in financial and capital mar-
kets, cautious lending policies, excessive rises in raw-material
prices, deflationary tendencies, soaring public-sector debt ratios,
increasing protectionism and a growth slump in the emerging
markets, particularly in China. The development of the world econ-
omy in 2010 expected by the majority of economic research insti-
tutions, and also by Daimler, is highly dependent on the develop-
ment of these risk factors. This means that there are still con-
siderable economic risks for Daimler’s financial position, cash
flows and profitability.
One of the most-discussed issues influencing future economic
developments, particularly in industrial countries, is the so-called
“exit strategies” of central banks and governments. The
central banks will once again have to reduce the surplus liquidity
that they have provided to prevent markets from drying up. The
more the world economy recovers, the bigger the risk potential
of this surplus liquidity, in particular with regard to potential
new bubbles or higher inflation. Governments’ “exit strategies”
aim to reduce the excessive levels of public-sector debt ratios,
which will require a course of strict consolidation. However, a
restrictive fiscal policy that is started too early could jeopardize
the fragile economic upswing.
Although the US economy was still recovering at the end of 2009,
there is still some uncertainty with regard to the sustainability
of this development. The financial market continues to constitute
a source of great risk potential. Estimates by the International
Monetary Fund (IMF) indicate that the peak of credit defaults will
probably not be reached until some time in 2010. Another factor
is that the supply of credit is by no means secure. Problems in this
respect would place substantial burdens on investment and
consumption and would also increase unemployment once again.
This could result in the recovery being halted or could even
trigger another temporary slump. Due to the importance of the US
economy, such an unfavorable development would have a cor-
responding negative impact also on the world economy. Although
the United States’ current account deficit decreased significantly
in 2009, the US economy is still dependent on inflows of capital
from abroad and a correction of the current account deficit is
inevitable in the medium term. Such a correction could depress
domestic demand and trigger further depreciation of the US
dollar. This depreciation could be accelerated by massive move-
ments in global currency reserves. In total, such occurrences
could have negative impacts on car and commercial-vehicle
demands.
Contrary to initial hopes, the economy of Western Europe was
not immune to the global recession. Similar to the situation in
the United States, the biggest risks for the continuation of the
incipient recovery are to be seen in the financial market. Due
to the large numbers of small and medium-sized enterprises, the
spread and exacerbation of refinancing difficulties would be
a major burden. A lasting shortage of credit would substantially
jeopardize the process of economic recovery and trigger further
bankruptcies, which could also affect automotive dealerships and
suppliers. There is also a risk that both private consumption and
companies’ investments could be significantly weaker than cur-
rently predicted. This would have a negative impact on demand
for motor vehicles, with considerable risk potential for the Daimler
Group due to the importance of Germany and other countries
of Western Europe as major sales markets.
The basic economic pattern including risks like those in the United
States and Western Europe also applies to Japan. Additional risks
are to be seen in the appreciation of the yen and the enormous
increase in government debt. Unfavorable economic prospects
would not only considerably reduce the Group’s exports to Japan,
but would also place a substantial burden on the development
of our operating units’ earnings in Japan.