The Group’s key business risks are explained in detail in Germany

the risk report on the previous pages. In this section we Following the tailing off of the economy last year, we are describe the expected future development of the Volks- forecasting only slight growth in the German economy in wagen Group and the general framework for its business 2013. The situation in the labor market will remain stable activities. We take the resulting opportunities and potential for the time being. The German economy is likely to return into account in the Group’s planning process on an ongoing to a moderate growth trajectory starting in 2014. The pace basis, allowing them to be exploited promptly.

of growth will depend to a large extent on further develop- Our forecasts are based on current estimates by third- ments in the eurozone. party institutions. These include economic research insti-

tutes, banks, multinational organizations and consulting North America

firms. This year, growth in the USA, Canada and Mexico will be roughly on a level with the prior year. Economic activity in

GLOBAL ECONOMIC DEVELOPMENT

North America can be expected to continue to pick up in Our plans assume that the global economy will continue 2014 as the global economy recovers. growing. Going forward, we expect that growth will remain

strongest in the emerging economies, and especially Asia South America

and Latin America, whereas we are forecasting only In Brazil, we are anticipating significantly higher growth moderate rates of expansion for the major industrialized rates in 2013 than in 2012. Argentina will also be able to nations in the medium term.

boost GDP , although inflation will remain high. Both countries should see continued growth in 2014.

Europe/Remaining markets In view of the ongoing sovereign debt crisis, we are Asia-Pacific

expecting to see stagnation in Western Europe overall in We expect China’s growth rates in 2013 and 2014 to remain 2013, and recessionary trends in Southern Europe. A rapid at the robust level recorded in 2012. In India, we anticipate recovery in 2014 will only be possible if substantial progress that the pace of expansion will be faster than in 2012. In is made in solving the crises in the eurozone. In Central Japan, the economic recovery that followed the natural and Eastern European countries, on the other hand, we disasters in 2011 will slow. believe that significantly faster growth is likely, though this will be affected in no small measure by developments in Western Europe.

In the case of the South African economy, we are expecting a slight rise in growth rates in 2013 and 2014 compared with the reporting period.

DEVELOPMENT OF THE M ARKETS FOR PASSENGER CARS AN D LIGHT COMMERCIAL VEHICLES

We expect developments in the markets for passenger cars and light commercial vehicles in the individual regions to

be mixed in 2013; overall, growth in global demand for new vehicles will probably be significantly slower than in the reporting period. We expect market momentum to increase in 2014 as against 2013.

The Volkswagen Group is well positioned to deal with the mixed developments in the automotive markets. Our broad product range featuring the latest generation of consumption-optimized engines gives us a global competitive advantage. We are pursuing the goal of offering all customers the mobility and innovation they need, sustainably strengthening our competitive position in the process.

Europe/Remaining markets

In Western Europe, we expect demand for automobiles to decline in 2013. The ongoing debt crisis is unsettling consumers in many countries in the region and restricting their financial freedom to buy new cars. Particularly in core markets such as Spain and Italy, large-scale government austerity measures are also putting a damper on demand. We expect the economic situation in Western Europe to ease somewhat in 2014, which should lead to a modest recovery in demand for new cars in many markets.

In Central and Eastern European markets, we expect only a slight increase in demand for automobiles in 2013 as against the prior-year level, and a return to higher growth rates in 2014. In Russia, it will fail to beat the high level recorded in 2012 and the market will probably not return to a growth trajectory until 2014.

After three years of high growth rates, the South African vehicle market is likely to ease in 2013 and 2014.

Germany

Despite the stable economic environment, the widespread consumer restraint in Western Europe also reached the German market in the reporting period. We expect demand to decline in 2013. Starting in 2014, there should be a modest rise in demand for automobiles in Germany once again, depending on further developments in the eurozone.

North America

In spite of a muted economic recovery, the US vehicle market benefited from pent-up replacement demand in 2012, a trend we believe will endure in a weaker form in

2013. However, the continuing uncertainty as to fiscal developments, the weak labor market and potential lending restrictions could impact market growth in the short term. We anticipate a sustained positive market trend in 2014. We are also expecting to see a positive trend in the Canadian and Mexican markets for passenger cars and light commercial vehicles in 2013 and 2014.

South America

Owing to their dependence on demand for raw materials, the South American markets are heavily dependent on the global economic developments. Increasingly protectionist tendencies are also adversely affecting the performance of the region’s vehicle markets, especially in Brazil and Argentina, which have imposed restrictions on vehicle imports. In Brazil, the largest market in the region, demand for vehicles soared in 2012 on the strength of tax breaks. It will probably remain on a level with the previous year due to the gradual reduction of these subsidies over the course of 2013. The Argentinian market is expected to contract further as a result of the macroeconomic situation. We anticipate that the region’s automotive markets will start growing again as from 2014. South America’s major economies should benefit from the expected rebound of the global economy.

Asia-Pacific

The markets in the Asia-Pacific region look set to continue their growth in 2013, albeit at a slower pace. Increasing demand for individual mobility will drive demand in China in particular. However, indications that the economy is losing traction could act as a brake on the demand for automobiles. In addition, restrictions on vehicle registrations – such as have already been introduced in Beijing, for example – could also be imposed in other metropolitan areas in China in the future, dampening market growth there. India is also likely to see positive volume growth, depending on the general economic policy environment. In Japan, backlog effects resulting from the natural disasters and government incentives boosted the market to an excep- tionally high level in the reporting period. We expect a substantial decline in demand in 2013, a trend that will be exacerbated by a weaker economy on the whole. For 2014 we assume that the Asian vehicle markets will continue growing, especially China and the markets in the ASEAN region.

MANAGEMENT REPORT 239 Business Development Shares and Bonds Results of Operations, Financial Position and Net Assets Volkswagen AG (HGB) Value-Enhancing Factors Risk Report Report on Expected Developments

DEVELOPMENT OF THE MARKETS FOR TRUCKS AND BUSES

pressure among shipyards and suppliers and leading to a Following the 8.9% decrease in demand for midsize and further drop in global shipbuilding capacity. The continued heavy trucks in 2012, we expect total volumes in the markets growth in offshore and special ships is expected to help relevant to the Volkswagen Group to mirror the 2012 level ease the situation in the coming years as well. Likewise, in 2013 and 2014.

there will be continued demand for government vessels. Market growth in Western Europe is currently being

Growth in the power generation market will depend on hard hit by the weaker economy. We therefore anticipate a macroeconomic developments. The high growth rates further decline in 2013 and a virtually flat market in 2014.

recorded in 2011 were not repeated in 2012. However, we In 2013, the pace of growth in Russia is expected to anticipate that the emerging markets will experience a slight trail behind that of 2012, while in 2014 it should remain at recovery in 2013 and 2014. The trend towards more roughly the same level. Key factors in this development are decentralized energy supplies, both here and in developed the multiyear fleet renewal program, which has saturated countries, is also likely to have a positive long-term effect demand for replacement purchases, and declining export on the business. The shift in power plants fueled by diesel and transport volumes to the EU.

or heavy oil towards natural gas power plants will continue. In the United States, we envisage greater demand for

The processing industry should continue to see positive, trucks despite the uncertain business climate for 2013 and albeit slower growth in 2013 and 2014 in the emerging 2014.

economies, which will also be subject to increasing price The Brazilian market is expected to see increased pressure. Due to the population growth in these countries, demand in 2013. This will continue in 2014, buoyed by state however, there is also high long-term demand for primary subsidies and more favorable financing conditions for materials. trucks. The preparations for the upcoming major sporting

The market trends in the oil and gas industry is events and the associated infrastructure developments may encouraging. We are currently seeing heavy investment in also boost the market.

the exploitation of deep sea oil reserves, but also in the China, the world’s largest truck market, is expected to production and sea transport of natural gas. Due to its low stabilize at 2012 levels in 2013 and 2014. The extent to which price, natural gas will lead to new developments in, among the incentive programs planned by the Chinese govern- other things, energy infrastructure, transport, petrochem- ment will up demand for trucks remains to be seen.

icals and production, especially in the USA . The trend of We expect the Indian market to develop positively in using natural gas as an alternative to oil is generally having 2013 and 2014.

a positive effect in all key regions. We anticipate further Demand for buses will probably exceed 2012 levels in growth in the oil and gas industry in 2013 and 2014. almost all regions in 2013 and 2014. In Western Europe,

The offshore wind market is not expected to pick up until however, the bus market is expected to shrink slightly in the technical and financial hurdles have been overcome. 2013 due to the debt crisis. We expect to see a slight recovery in the market again in 2014 with a return to 2012 levels. In

The Group’s key business risks are explained in detail in Germany