Mercedes 2006 Annual Report Download - page 84

The US economy is increasingly dependent on the inflow of fo reign
capital to finance its rapidly growing current-account deficit,
and
this situation has become a source of considerable risk potential.
If capital inflows cease or are not available in the required
volumes, the country’s current-account deficit will have to be
corrected. This could, caused by higher interest rates and a
drastic depreciation of the US dollar, lead to significantly lower
growth in the United States and thus also in other regions of
the world. Additional risks that would weaken economic growth in
the United States are an excessive rise in capital-market interest
rates and a fall in asset values (stocks, real estate). Both of these
factors would in particular substantially reduce private
consumption.
The economy of Western Europe developed positively in 2006.
However, it cannot safely be assumed that the positive development
of domestic demand, i.e. private consumption and investment,
will continue. In Germany in particular, a growth dip seems likely
for the year 2007, with the possibility of even a slight decrease
in private consumption at worst. This would have negative conse-
quences for the demand for automobiles. Due to the importance
of Western Europe and thus also Germany as sales markets for
DaimlerChrysler, this therefore has considerable risk potential
for the Group.
To a certain extent, the situation of the Japanese economy
is
similar, although its risk level has decreased somewhat.
A renewed
weakening of the Japanese economy would not only
significantly reduce the Group’s exports to Japan, but would
also place a substantial burden on the earnings trend of our
subsidiary, Mitsubishi Fuso Truck and Bus Corporation.
Additional important risk potential is to be seen in the high level of
raw-material prices. If prices were to remain high or actually
continue rising, the assumed economic development would be
jeopardized. Private households’ purchasing power would fall
and companies’ costs would increase, and these two factors
combined would have a negative impact on growth primarily
in the oil-importing countries. An abrupt and long-term rise in the
price of oil could even cause some economies to slip into
recession.
A marked reduction in growth rates in China would also be
strategically relevant for the Group, as this is currently the most
dynamic automobile market in the world and has enormous
potential for the future. In view of China’s economic power and the
sharp increase in the flows of international investment and
trade with China, such a slump would not only have serious
consequences for the whole of Asia, but could also cause
significant growth losses for the world economy, with negative
effects on DaimlerChrysler’s activities. Potential economic
crises in the other emerging markets in which the Group has
important production facilities could also be of particular
relevance. But crises in emerging markets where the Group is
solely active in a sales function would result in a more limited
risk exposure.
Risks for market access and the global networking of the Group’s
facilities could arise as a result of a failure of multilateral trade
liberalization, in particular if international free trade was weakened
in favor of regional trade blocks or a return to protectionist
tendencies. A sharp rise in bilateral free-trade agreements outside
the European Union could affect DaimlerChrysler’s position in
key foreign markets, particularly in Southeast Asia, where Japan
is increasingly gaining preferred market access.
Finally, the world economy could be negatively influenced by a
sustained deterioration in consumer and investor confidence.
This could be triggered by geopolitical and military instability,
concern about a possible sharp drop in share prices and the
battle against terrorism.
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