Mercedes 2012 Annual Report Download - page 122

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3 | Management Report | Risk Report
As in the past two years, we see the development of the euro
zone as the biggest risk for the world economy. The economy
of the euro zone slipped into recession in 2012, and prospects
for the year 2013 remain difficult. The political implementation
of reforms and other actions for budget consolidation in the
countries of Southern Europe could be slowed down by increasing
public protects or decreased pressure to reform following
the announcement of measures to be taken by the European
Central Bank. This would lead to a massive loss of confidence
in the capital markets and thus to increased volatility and
rising interest rates. The burdens on government budgets and
on the banking system would be hard to manage and could
further jeopardize a recovery of the real economy. Even the risk
that the reform process in Greece will fail altogether has not
been completely averted despite the renewed aid package
in late 2012. If no further reform steps are taken – whether
for political or economic reasons – or if public rejection is
too great, this could finally lead to Greece’s exit from the euro
zone with significant contagion effects for the global financial
system and the world economy. Unlike the global financial crisis
of 2008/09, most European countries would no longer be
able to afford to recapitalize their national banks or to stimulate
their economies by means of fiscal policy. Due to global inter-
connections, the then inevitable banking crisis and recession
in the euro zone would probably spread to other countries
with severe consequences. Such a case would result in a global
recession. Due to the ensuing crisis of confidence and credit
crunch, both consumption and investment would fall drastically –
along with demand for cars and commercial vehicles. For
Daimler, such a development would not only reduce unit sales
considerably, it would also have a very negative impact
on refinancing costs and possibilities.
Although the United States managed to avoid some
of the feared impact of the “fiscal cliff” at least temporarily,
the country’s government continues to be faced with con-
siderable pressure to consolidate its finances. The agreement
reached at the beginning of 2013 only included the most
urgent issues and in fact only avoided a direct drift into reces-
sion in the first quarter. But the level of debt is grave as
ever and will stay right at the top of the political agenda.
This includes above all raising the debt ceiling as well as the
approach to and design of the automatic spending cuts.
Uncertainty about the direction of US fiscal policy and potential
steps to be taken to balance the budget will thus remain
as negative economic factors also in 2013. Due to the continued
comparative weakness of investment and the real-estate
market, the continuation of historically high unemployment,
and fragile consumer confidence, the US economy would
not have many options to counteract an unexpected budget-
policy shock. In this case, the United States could slip into
recession for one or several quarters. An escalation of the debt
crisis in the euro zone, for example in the form of one or
several exits by euro member states, would have a massive
impact on the global economy and thus also on the US
economy. These could have negative effects for the passenger
cars and the truck market demand.
A lasting growth slump in China would be of strategic impor-
tance for Daimler. It already became clear during 2012 that
the Chinese growth model is not invulnerable. As a result
of the global growth slowdown, but also due to the weakness
of the country’s real-estate sector, expansion of Chinese
GDP fell to its lowest level since the global finance and economic
crisis. But as China has become the main driver of world
growth in recent years, a growth slump in China would have
massive consequences for the global economy. Although
economic development stabilized again towards the end of 2012,
thanks to stimulating economic policies, risks still remain.
If the expected significant recovery of GDP expansion does
not materialize in 2013, the Chinese government could take
fiscal and monetary countermeasures. But this would further
exacerbate the budgets of local municipalities, which
were already massively burdened by the stimulus programs
of 2008/09, thus substantially limiting the scope of future
debt. An additional factor is that repeated one-sided support
for investment and exports could further delay the targeted
balancing of the country’s growth model with increased private
consumption. That would further increase the medium-term
risks for growth of over-investment and export dependency,
making a “hard landing” of the Chinese economy in the coming
years more likely. A slump in growth rates to less than 6%
would have an enormous impact on the world economy, espe-
cially on exporters of raw materials in the Middle East, Africa
and Latin America. As well as their importance for worldwide
demand for raw materials, Chinese companies have increas-
ingly invested abroad in recent years, in emerging markets and
in the EU. In the case of a growth slump in the domestic
market, such investment would undoubtedly decrease and cause
further headwinds for the development of the OECD countries.
As the year 2012 has shown in Brazil and India, other emerging
markets that are also highly important for Daimler can also
unexpectedly enter phases of economic weakness. This has
immediate effects on demand for cars and commercial vehicles
in those regions, and is a risk that cannot be discounted
also in 2013.
As in the previous years, significant geopolitical risks exist,
especially in the Middle East, with the potential to massively
disturb the global economic equilibrium. There is a danger
for example of an escalation of the nuclear conflict between
Iran on the one side and Israel and the United States on the
other. A military escalation or a blockade of the Strait of Hormuz
could result in an oil-price shock, which would drastically
reduce global growth rates and in an extreme case could even
plunge the world economy back into recession. Developments
in Egypt, Libya and Yemen remain uncertain, still no end is in sight
to the civil war in Syria. The combination of several of these
potential risks in the Middle East could lead to significantly higher
oil prices in 2013. Even in a relatively mild scenario, higher
oil prices would reduce demand in many countries and as part
of a chain reaction could also influence prices of other raw
materials, including food. Rising inflation rates would require
stricter monetary policy on the part of the central banks
than we currently anticipate. This in turn would dampen growth
in the emerging markets and growth in the weakened indus-
trialized countries would at least be brought to a standstill.