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DES GB2015 Englisch

The statements made relate solely to those subsidiaries included in the consolidated financial statements of Deutsche EuroShop for which Deutsche EuroShop is in a position, directly or indirectly, to dictate their financial and operating policies. ILLUSTRATION OF MATERIAL RISKS AND OPPORTUNITIES Cyclical and macroeconomic risks Buoyed by the positive climate for consumption and the good contri- bution from external trade, price-adjusted GDP grew by 1.7% in 2015 (source: German Federal Statistical Office). The German economy re- mains on a growth track. It has performed well in a tough global en- vironment. Real wage growth and a stable wage share are having a very stabilising effect on domestic demand, and exports were in line with the previous year’s level. The federal government forecasts GDP growth of 1.7% in Germany in 2016. The labour market is in very good shape, after continuing on its posi- tive trend. Unemployment fell slightly once again in 2015, from 6.7% to 6.4%. Around 43.3 million people were employed as at the end of 2015. Another 2.8 million were registered unemployed. Germany has one of the highest levels of economic participation in Europe. For the coming year, the German federal government expects the labour mar- ket to remain robust, albeit harbouring risks, with the average unem- ployment rate at 6.4%. After eurozone GDP had risen by 0.9% in 2014, it gathered some momentum in 2015 to increase by 1.6%. The European Commission expects growth of 1.7% for the 19 eurozone member states in 2016. In 2015, the overall unemployment rate in the eurozone was still a high 11%. The upturn in the real economy does not have universally solid foundations. Although the recession appears to have bottomed out in Europe, the debt crisis remains a major source of uncertainty, and the economic difficulties, geopolitical risks and refugee crisis represent major drags for the eurozone. Furthermore, the Chinese economy cooled towards the end of last year, the US Federal Reserve signalled an end to the country’s low inter- est rate policy when it made a first rate hike for many years, and the dramatic fall in oil prices is having a severe negative impact on most oil-exporting countries. This environment sparked turmoil on finan- cial and equity markets all over the world in early 2016, highlighting how strongly international interconnections between economies and the financial markets are. Global sentiment deteriorated in the space of just a few weeks. The latest developments harbour considerable risks for the world economy, and the uncertainty on the markets could slow or even wipe out the recent more positive economic momentum. Consumer price inflation fell year-on-year once again in 2015. German inflation was 0.3%. Prices in the eurozone went up by 0%, and the Euro- pean Central Bank is using all weapons in its armoury to avoid deflation and its harmful effects on economic activity and consumer spending. The main reason behind the fall was the huge drop in oil prices, which offset the bulk of price increases in many other areas of consumption, such as rents, food and services. We continue to rate the risks to the economy as a whole as high. These risks have risen again in light of the latest developments on the inter- national financial markets, as market participants have the increas- ingly firm impression that the monetary policy actions taken by central banks around the world have not yet had the desired effect. Despite historically low interest rates, most economies are posting no real sus- tainable growth. There are also suspicions of asset price bubbles in some areas of the economy, which in the event of a significant down- turn could burst and trigger a fresh financial crisis. Deutsche EuroShop AG is not as strongly affected by short-term eco- nomic developments as companies in other sectors, by virtue of its business model – long-term leasing of retail space – and the associat- ed risks. However, in light of the trends described, we cannot rule out the possibility of a change in economic conditions that would impact Deutsche EuroShop AG’s business. Past experience has demonstrated that by situating our shopping centers in prime locations and by ensuring broad sector diversifi- cation within the centers, we can achieve commercial success even under difficult economic conditions. Market and sector risks There has been a structural change in retail trade in recent years, caused by continual shifts in demand patterns and new forms of offer- ings. The greatest success has been enjoyed by large-scale retail oper- ations that are able to offer customers a wide range of goods. Thanks to its business model, Deutsche EuroShop is in a position to benefit from this development, especially as the experience aspect of shopping has gained in importance and a trend towards shopping as a recreational and lifestyle activity has become apparent. Revenue in the bricks-and-mortar retail sector (including online sales) saw nominal growth of 2.8% and 2.7% in real terms in 2015 (2014: +1.7% nominal, +1.4% real). Total revenue was €472.4 million. The German Retail Federation (HDE) predicts nominal retail sales growth of 2.0% to €481.8 billion in 2016. MANAGEMENT REPORT 130 Deutsche EuroShop AG Annual Report 2015

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