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Once again, exports proved to be the key factor driving growth in the German economy. While private and government consump- tion expenditure also contributed to GDP growth, investments have dropped. In the construction industry (particularly in commercial and residential developments), for instance, investments were down by 1.1%. The German labour market weathered the economic slowdown in 2012 quite well, hitting a new record high for the sixth year in a row with 41.6 million people in employment. According to the Ger- man Federal Employment Agency, the number of people registered as unemployed in 2012 averaged 2,897 million, some 79,000 or 2.6% less than in the previous year. The unemployment rate fell on an annual average from 7.1% to 6.8%. Using the internationally comparable ILO (International Labour Organisation) methodology, the unemployment rate in Germany fell by 0.2% to 5.3% between December 2011 and December 2012. In 2012, gross pay per employee rose by 2.6% according to the Ger- man Federal Statistical Office. In an environment marked by high employment and low interest rates, the propensity to consume con- tinued to rise and the savings rate fell to 10.3% of disposable income in 2012 (2011: 10.4%). Private consumer spending, which accounted for 57.6% of GDP, rose by a nominal 2.4% in 2012 (real: +0.8%). Measured against the consumer price index, living costs in Germany have risen by 2.0%. This represents a further increase on the previous year (+2.3%), although not as pronounced. Inflation was precisely at the price stability target of 2% p.a. set by the European Central Bank (ECB). The price increase was mainly driven by energy, with the price of household energy (including electricity and gas) rising by 5.6%. Stripped of these effects, inflation was only 1.6%. Other main drivers of inflation were the prices for food as well as clothing and shoes, which rose by 3.2% and 2.7%, respectively. Residential rent prices, on the other hand, only rose moderately (+1.2%). The down- ward trend in prices for communication (-1.3%) continued in 2012. Economic trends varied tremendously within Europe in 2012. On the one hand, countries affected by the sovereign debt crisis continued to suffer from recession. On the other, it was particularly the major economy of Germany, along with a few smaller member states, that underpinned economic development in Europe. Economic output contracted both in the EU (-0.3%) and in the eurozone (-0.4%). The upward trend in prices has slowed down in Europe, with the infla- tion rate falling on an annual average from 3.1% to 2.6% for the EU and from 2.7% to 2.5% for the eurozone. As a consequence of the problems in countries hit by the euro crisis, the seasonally-adjusted number of unemployed increased by 1,796 million within a year to 18,715 million in December 2012, while the unemployment rate (according to ILO) rose from 10.7% to 11.7%. ECONOMIC CONDITIONS IN THE INDUSTRY RETAIL SECTOR According to figures from the German Federal Statistical Office, retail sales in Germany rose by a nominal 1.9% in 2012 (excluding vehicle sales). In real terms, i.e. adjusted for price differences, they declined by 0.3%. Almost all branches and sales channels recorded drops in sales. While “other retail (such as books and jewellery)” saw real sales grow by 0.6% and formed one of the exceptions, “textiles, clothing, foot- wear and leather goods” recorded a more significant price-adjusted reduction of -2.2%. Looking at the sales channels, the trend away from “other retail involving goods of various types” (such as depart- ment stores) continued with a real fall in revenue of 2.3%. Sales in “online and mail-order business”, on the other hand, increased by 1.4% in real terms in 2012; taken alone, online business succeeded in boosting its sales by 13%. According the Handelsverband Deutschland (HDE – German Retail Association), the retail sector has continued to recover and is a stabi- lising factor in the German economy. The positive development in the labour market, higher incomes and low interest rates increased the propensity to consume, thus giving the retail trade a boost in 2012. With around 400,000 companies and 3.0 million employees in the reporting year, the retail trade in a narrow sense (excluding vehicles, petrol stations, pharmacies) saw an increase in revenues of 1.5% to €427.9 billion (previous year: €421.5 billion), representing 16.2% of GDP according to information provided by HDE. Based on calculations from Jones Lang LaSalle, rental turnover on retail spaces let in Germany in 2012 decreased by 13% to 590,000 m2. Two developments were visible here. On the one hand, the share of international concepts declined from 60% to 55%. On the other, there is a continued trend both toward large cities (>100,000 inhab- itants) outside the “Big 10”1 and toward small- and medium-sized cities. The average space let decreased by 14% to 600 m2 , while rental space in excess of 1,000 m2 accounted for 33% of lease agreements. Demand for smaller retail premises of under 350 m2 remained high, accounting for 38% of all leases. With 28% of rented floor space, textile retailers were the most sig- nificant demand group. “General clothing” and “Women’s clothing” were the dominating segments within this group. In second place behind textiles retailers were food retailers, accounting for 18%, fol- lowed by catering in third place with 12%. 1 Berlin, Dusseldorf, Frankfurt, Hamburg, Hanover, Cologne, Leipzig, Munich, Nuremberg and Stuttgart { 123 } DES ANNUAL REPORT 2012 GROUP MANAGEMENT REPORT Overview of the course of business

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