Mercedes 2010 Annual Report Download - page 111

Management Report | Risk Report | 107
With few exceptions, such as Germany or Sweden, economic
recovery in Western Europe has been rather moderate so far.
The biggest risks for the ongoing development are to be seen in
the financial markets and the consolidation of budget deficits.
The countries of the euro zone in particular could come under
pressure due to the continuing discussion about refinancing
problems, sovereign default and banks’ problems. As the basic
scenario already contains a substantial growth differential within
Western Europe, this could become more extreme and increase
the existing tension. Demand for and supply of credit have
been rather disappointing in the economic cycle so far. If credit
volumes decreased significantly, the resulting burden would
be primarily on small and medium-sized enterprises. The contin-
uation of the economic recovery process could be jeopardized
and lead to another spate of insolvencies, possibly affecting vehi-
cle dealers and automotive suppliers. There is also a risk that
both private consumption and companies’ investments will be
substantially weaker than assumed, which would have a corre-
sponding negative impact on demand for motor vehicles. This
has considerable risk potential for the Daimler Group given
the importance of Germany and the other countries of Western
Europe as major sales markets.
The basic economic pattern for Japan is similar. Although the
country’s economic growth rate was relatively strong in 2010,
it was already significantly less dynamic in the second half
of the year. The appreciation of the yen was a particularly nega-
tive factor. If the yen stays at this high level or continues to
climb, the Japanese economy will come under even more pres-
sure. The enormous increase in the national debt and the high level
of unemployment by Japanese standards are sources of addi-
tional risk potential that should not be underestimated. A less
favorable economic outlook in Japan would not only reduce
the Group’s exports to that market, but would also worsen the
earnings of our subsidiaries there.
A sustained reduction in economic growth in China would also
be financially and strategically relevant for Daimler. Concern
about an investment and real-estate bubble were often apparent
in China last year. In the second half of 2010, increased food
prices put pressure on the inflation rate, which in the long term
could jeopardize social stability. Significantly lower growth
rates in China would result in distinct growth losses for the world
economy and would therefore affect Daimler’s business opera-
tions. Risks for the development of demand could also result from
measures taken to avoid economic overheating (e.g. regional
approval restrictions), especially if such measures are wide-rang-
ing or stringent. An additional factor is that possible economic
crises in the emerging markets where the Group has important
production facilities could be highly relevant. On the other hand,
crises in emerging economies where Daimler is active solely in
a sales function would result in a more limited risk potential.
We see an additional major risk in the development of raw-mate-
rial prices. If prices were to rise sharply once again and depart
even further from fundamentally justified levels, the assumed
global economic outlook would be jeopardized. Raw-material
markets have so far absorbed some of the excess liquidity, and
with a continuation of expansive monetary policy, there is a danger
of speculative bubbles. This would result in a negative impact
on growth, especially in those countries that import large volumes
of raw materials. However, falling raw-material prices entail
substantial risks for the economic growth of raw-material export-
ing emerging markets.