5.9 Percent 4.4 Percent 10.2 Percent 9.7 Percent. autonomous federated state Head of Government Angela Merkel Horst Seehofer José Manuel Barroso 3,7%

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Economic Outlook Germany, Bavaria, Eurozone, and EU-27 General Information Germany Bavaria Eurozone EU-27 Area 357.022 km² 70.552 km² 4.324.782 km² Population 81.796.000 12.583.538 327.054.866 502.

1 Economic Outlook Germany, Bavaria, Eurozone, and EU-27 General Information Germany Bavaria Eurozone EU-27 Area km² km² km² Population GDP (in MM. Euro) PPP Euro Euro Euro Euro GDP Growth Percent 2.9 Percent 1.5 Percent 1.5 Percent Unemployment rate/avg Percent 4.4 Percent 10.2 Percent 9.7 Percent Form of Government Parliamentary Parliamentary Mixed Federal Republic Republic, partially autonomous federated state Head of Government Angela Merkel Horst Seehofer José Manuel Barroso Gross Domestic Product Gross Domestic Product Annual change 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% -6% 3,7% 3,3% 3,3% 3,2% 3,3% 3,0% 2,0% 1,7% 0,7% 3,7% 3,0% 2,1% 2,0% 1,7% 1,5% 1,5% 1,3% 1,1% 1,0% 0,7% 0,3% 0,4% 0,0% -0,3% Forecast -4,4% -4,4% -5,1%

2 During the world economic crisis, German GDP fell by 5.1 percent, a noticeable downturn, but still remained above the average in both the Eurozone and the EU-27. In the course of 2010 and 2011, the German economy grew by 3.7 and 3.0 percent respectively, a much more dynamic growth than the European average. Forecasts for 2012 predict some cooling off and only slight growth (+ 0.7 percent). According to experts opinions, the EU-27 will experience stagnation and the Eurozone will even lose 0.3 percent of its economic strength. Germany's growth in 2013 is likely to exceed the EU-27 average. A quarterly review of 2011 and 2012 shows the economy cooling off in Germany, in the Eurozone, and within the EU-27. Gross Domestic Product Quarterly change, seasonally adjusted 1,4% 1,2% 1,2% 1,0% 0,8% 0,7% 0,7% 0,6% 0,4% 0,2% 0,0% 0,5% 0,4% 0,2% 0,2% 0,2% 0,1% 0,0% 0,0% 0,5% 0,3% -0,2% -0,4% -0,3% -0,3% -0,1% -0,2% -0,2% -0,6% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Per capita GDP in Germany, expressed in Purchasing Power Standards 1 (EU-27 = 100 PPS), amounts to 118 (ranking 8th in the 27 EU countries). 1 Purchasing Power Standard = Fictitious currency that compensates for distortion caused by price level differences. 2

3 Consumer Price Index Between 2004 and 2011, price increases in Germany were below the EU-27 average, strengthening Germany s competitiveness in its biggest export market (EU-internal market) and complying with monetary policy (price level stability). Inflation Rate HICP, yearly, in percent 4,0% 3,7% 3,5% 3,0% 2,5% 2,0% 1,5% 1,0% 2,1% 2,0% 1,8% 2,2% 2,2% 2,2% 2,2% 1,9% 1,8% 2,3% 2,1% 2,3% 3,3% 2,8% 1,0% 2,1% 1,6% 1,2% 3,1% 2,7% 2,5% 0,5% 0,0% 0,3% 0,2% Real Effective Exchange Rate The real effective exchange rate within a country (or a common currency area) is indicative of its price and cost competitiveness vis-à-vis its most important competitors on the international markets. An increase of this index is equivalent to a decrease in competitiveness. Germany s competitiveness within the Eurozone and the EU-27 has considerably improved since Real Effective Exchange Rate 1999 =

4 Industrial Production German industrial production registered a dramatic downturn in mid-2008, replicating trends in the Eurozone and the EU-27. Since then, however, there has been a dynamic recovery. Current margins show sideways movement at a high level. The EU-27 and the Eurozone have not been able to return to their baseline position. Industrial Production 2005 = 100, seasonally adjusted Source: Eurostat Seasonally Adjusted, Manufacturing Industry Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun EU mom 1.2% 0.7% -1.7% -0.2% -0.2% -0.3% -0.1% -0.9% 0.9% -1.5% 1.1% -1.0% Eurozone mom 1.3% 1.1% -2.5% -0.1% -0.5% -0.4% -0.4% -0.5% 1.1% -2.0% 1.2% -0.7% Germany mom 3.2% -0.3% -2.3% 0.5% -0.3% -1.4% 0.3% 0.3% 1.1% -2.3% 2.1% -1.1% 4

5 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Unemployment Unemployment Rate Standardized (ILO concept), Jan 2009 through December % 11% 10% 9% 8% 7% 6% 5% 4% Unemployment in Germany has increased only slightly in the wake of the financial and economic crisis, largely due to the German scheme of short-time work. The labor market has since registered continuous growth and unemployment fell from its 2009 high of 8.0 percent to currently 5.4 percent. Contrary to this, unemployment figures both in the Eurozone and the EU-27 have not registered any improvement; since mid 2011 there has even been an additional increase. Standardized, Seasonally Adjusted In percent Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun EU Eurozone Germany In order to allow for international comparability, the ILO has developed a standardized definition of unemployment. According to the Federal Employment Agency (BA), unemployment in Germany stands at 6.8 percent; Bavaria s unemployment rate is the lowest, at only 3.4 percent. 5

6 The Metal and Electrical (M + E) Industry in Bavaria Industrial Production, Incoming Orders and Labor Market Industrial production had suffered a drastic downturn as a consequence of the economic and financial crisis, but by the second semester of 2009 there were already signs of a rebound. The Metal and Electrical (M + E) Industry in Bavaria developed at a slightly higher rate than the national average; current data show signs of a high-level slowdown. The entire production of this branch of industry in Bavaria grew by 17.3 percent in 2010 and by 10.9 percent in After the downturn registered in the fourth quarter of 2011, production rose again by 2.8 percent during the first quarter of However, during the second quarter of 2012 the cooling off trend held, with a decrease of 2.3 percent. Throughout Germany, the M + E industry developed at a somewhat slower pace during 2010, registering a growth of 15.8 percent turned out to be somewhat more dynamic, with a growth of 13.0 percent. Production, Metall and Electrical Industry 2005 = M+E Bavaria M+E Germany Sources: State Statistics Office, Federal Statistics Office, bayme vbm 6

7 Incoming orders in the Metal and Electrical Industry experienced a downturn as a consequence of the financial and economic crisis, then held steady after a slight recovery. Since the end of the crisis, incoming orders in Bavarian industry increased by 20.9 percent in 2010 and by 5.8 percent in After the downturn during the fourth quarter of 2011, incoming orders grew again by 2.1 percent during the first quarter of However, an economic downturn is starting to show, with a decrease of 1.2 percent during the second quarter. The average decrease in incoming orders for all of Germany had been more drastic, so that growth rates for 2010 and 2011 were also more dynamic, registering at 24.1 and 8.9 percent, respectively. During the first quarter of 2012, incoming orders fell by 1.2 percent compared to the fourth quarter of 2011, but surprisingly rose by 1.9 percent during the second quarter. Production, Metall and Electrical Industry 2005 = M+E Bavaria M+E Germany Sources: State Statistics Office, Federal Statistics Office, bayme vbm 7

8 Industrial labor market development in Bavaria and in all of Germany has been almost identical. Although jobs were lost during the financial and economic crisis, the German scheme of short-time work prevented a more dramatic loss. Ever since, the labor market in the Bavarian Metal and Electrical Industry has only experienced one direction - up. Since hitting a low in May of 2010, around new jobs have been created in the Bavarian Metal and Electrical Industry; employment has reached its highest level since Employment, Metal and Electrical Industry 2005 to M+E Germany (left axis) M+E Bavaria (right axis) Sources: State Statistics Office, Federal Statistics Office, bayme vbm 8

The real change in private inventories added 0.22 percentage points to the second quarter GDP growth, after subtracting 0.65% in the first quarter.

The real change in private inventories added 0.22 percentage points to the second quarter GDP growth, after subtracting 0.65% in the first quarter. QIRGRETA Monthly Macroeconomic Commentary United States The U.S. economy bounced back in the second quarter of 2007, growing at the fastest pace in more than a year. According the final estimates released