Annual Report 2007

•    Annual Report 2007 
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2. Underlying economic conditions

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2.1 Overall economic situation

In 2007, the global economy continued its expansion of recent years. Global gross domestic product grew by 5.1 percent (2006: 5.4 percent). The growth was essentially supported by the sustained high momentum in the emerging economies, primarily in Asia and in particular in China. It was also relatively resistant to the global turbulences on the financial markets in the second half of the year. A further softening of economic growth was evident in the U.S. In contrast, the German economy continued its upswing.

Performance of significant currencies

The foreign currencies of greatest importance for the performance of Software AG are the U.S. dollar, the British pound, the South African rand, and the Australian dollar. Throughout the year, the U.S. dollar continued its decline in relation to the euro.

The exchange rates used for currency translation from the euro changed as follows compared to the previous year:

Closing rate (€1)

Source: Commerzbank AG, Frankfurt

Average rate for the year (€1)

Source: Commerzbank AG, Frankfurt

USA

The economy in the U.S. continued to cool in 2007. A significant reason for this was the persistent weakness in the real estate market that started in 2006. In addition, the crisis in the international financial markets, the high energy prices and the uncertainty concerning the impact of the real estate crisis had a dampening effect on the overall economy. Private consumption continued to be the most important pillar of the U.S. economy. Overall growth was 2.2 percent weaker than in 2006.

Europe

The upturn in the eurozone continued at a slightly reduced pace throughout 2007. Economic development in the member states was less diverse than in 2006. Exports and gross investment in fixed assets spurred growth in the first six months of 2007 while private consumption accelerated in the second half.

The strong economic performance in Germany also contributed to the positive trend in the eurozone. The German economy continued its upturn with 2.6 percent growth, which was, however, slightly slower than in the previous year. This softening was partly due to the increase of the value added tax in early 2007 and the uncertainties surrounding the U.S. financial crisis.

The economies in Eastern Europe continued to grow at a fast pace in 2007 with 5.6 percent growth. This, however, fell short of the previous year's figure of 6.0 percent.

Asia

The economy in Asia continued to grow at a dynamic pace in 2007 in spite of the slowing of the Japanese economy. Overall, the Japanese economy grew by 1.9 percent. In contrast, China was able to increase its economic momentum even further, growing at a breakneck pace of 11.4 percent. As a result, economic growth in China exceeded 10 percent for the fifth year in a row. The positive performance is due in particular to a robust increase in production as well as high capital expenditure and exports. The emerging economies of South East Asia also performed very positively with growth rates from 4 to 6 percent. In these countries, the expansion was supported primarily by the robust domestic demand.

Latin America

Latin America evidenced robust economic expansion in 2007; however, the 4.9 percent growth fell short of the 5 percent threshold for the first time in three years. High commodity prices supported the economy. Brazil's economic performance was particularly positive.

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