System-ID: s_12_0

Management Report

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Economic environment and key markets

Macroeconomic data on key markets of Gorenje
GDP growth1.7%3.6%2.3%1.6%1.1%4.0%3.7%1.6%-1.8%
Change in exchange rate of local currency--0.2%---5.4%-10.6%11.5%1.2%
Sources: European Commission, Eurostat, EIU, MDS for EMU, Russia and Ukraine, Bank of Slovenia.
Economic environment

After a dramatic decline in economic activity in the year 2009 the global economy recovered from the recession in the year 2010 as expected. All our key markets followed this trend, except Croatia, where GDP decreased for the second year in a row. The main growth factor in the European economy is the increased demand in the export markets, primarily a result of rapid growth in developing markets (primarily India and China).

On the other hand growth in consumer spending was minimal which is also reflected in the relatively low demand for durable goods. Weak consumer spending is one of the most important reasons why European economies achieve only low growth rates. Growth in the year 2010 replaced less than one-half of the decrease in the year 2009, which means that the European economy will likely return its pre-crisis level of activity in the year 2012.

Data on unemployment are of vital importance to the situation in our central lines of business. The fear of potential job loss results in the postponement of purchases of durable goods. Unemployment has remained high in all our key markets. This indicates precautionary and savings policies of the companies that continue implementing anti-crisis measures as the answer to the complex situation in the market, on one hand, and, on the other hand, continuation of the recession spiral causing collapse of many companies due to poor payment discipline and continuation of the credit crunch.

Countries of Central and in particular Eastern Europe are still seeking a way out of the recession. Croatia had negative economic growth and recorded a sharp decline in sales, which is a result of continuous declines in investments and low consumer spending. The downward trend in purchasing power and the poor economic situation is present in Serbia as well. The year 2010 was marked among others factors by continuous depreciation of select currencies. The Serbian dinar dropped against the euro by 9.6 percent in 2010, while the Croatian kuna depreciated in the last quarter of 2010.

Source: IMF, ”World Economic Outlook Updat”, October 2010
Source: Reports of the Bank of Slovenija
The European economy will return to its pre-crisis level of activity in the year 2012.