Ger­man com­pa­nies brace for dif­fi­cult 2013

The Pak Banker - - Front Page -

FRANKFURT

Europe is in re­ces­sion, but the ma­jor­ity of com­pa­nies in Ger­many, the re­gion's top econ­omy, are con­tin­u­ing to defy the cri­sis, with strong and of­ten bet­ter-than-expected re­sults in the third quar­ter.

Nev­er­the­less, the clouds are gath­er­ing above Ger­many too, and the chill winds from the global down­turn are set to blow even harder here next year, caus­ing com­pa­nies to tighten their belts for what prom­ises to be a dif­fi­cult year.

While their strong over­seas pres­ence has helped shield Ger­man com­pa­nies from the worst of the down­turn in Europe so far, the prospect of an eco­nomic slow­down in China and an only tepid re­cov­ery in the United States is send­ing shivers through ex­port-ori­en­tated Ger­man in­dus­try.

"The de­cline in out­put and rev­enues is go­ing to be sub­stan­tial in the fourth quar­ter and Ger­man com­pa­nies know this," said Heino Ru­land, mar­ket strate­gist at Ru­land Re­search.

Last week, in­dus­trial gi­ant Siemens, one of Ger­many's big­gest com­pa­nies, un­veiled plans to slash costs by €6.0 bil­lion (Dh28.8 bil­lion or $7.7 bil­lion) over the next two years.

Chief ex­ec­u­tive Peter Loescher warned that the aus­ter­ity drive would "have an im­pact on the work­force," but de­clined to re­veal any de­tails just yet. Other com­pa­nies are also try­ing to re­duce over­head.

At the end of Oc­to­ber, auto gi­ant Daim­ler said it would aim to slash costs in its car division by €2.0 bil­lion be­tween now and the end of 2014.

In the bank­ing sec­tor, which is feel­ing the fi­nan­cial freeze more than most as low in­ter­est rates and tougher bank- ing rules eat into prof­its, the winds blow­ing through the cor­ri­dors of the coun­try's two big­gest lenders, Deutsche Bank and Com­merzbank, are also raw. Deutsche Bank is plan­ning to cut costs by an an­nual €4.5 bil­lion by 2015 and 1,900 jobs in the in­vest­ment bank­ing division are al­ready fac­ing the chop. Me­dia re­ports say Com­merzbank, too, which is plan­ning to fo­cus on its core re­tail bank­ing busi­ness, could be ready­ing to axe around 10 per­cent of its work­force.

Air­line Lufthansa is sim­i­larly step­ping up its cost-cut­ting af­ter al­ready an­nounc­ing the loss of 3,500 ad­min­is­tra­tive jobs. BASF, the world's big­gest chem­i­cals maker, is look­ing to save €1.0 bil­lion by the end of 2015. And in­dus­trial gas spe­cial­ist Linde, which turned in an ex­cel­lent third quar­ter, is like­wise hop­ing to lop €750€900 mil­lion off its an­nual bills. "This will help to re­in­force our high level of prof­itabil­ity even in a chal­leng­ing en­vi­ron­ment," said chief ex­ec­u­tive Wolf­gang Reit­zle.

Ger­man com­pa­nies are no strangers to cost-cut­ting and "they know they have to con­tin­u­ally adapt to chang­ing eco­nomic con­di­tions as they com- pete glob­ally," and with US, Ja­panese and Chi­nese com­pa­nies in par­tic­u­lar, said an­a­lyst Heino Ru­land.

Port­fo­lio ra­tion­al­i­sa­tion, stream­lin­ing pur­chas­ing and a more flex­i­ble work­force are the cho­sen op­tions.

"The big­gest job cuts are tak­ing place in Ger­many's bank­ing sec­tor, not more cycli­cal in­dus­tries, where com­pa­nies want to keep hold of their spe­cialised work­forces," said Baader Bank strate­gist Robert Halver.

It is thanks to in­stru­ments such as these that there is no wide-scale blood-let­ting in terms of jobs in Ger­many at the mo­ment, said Halver. A sur­vey of in­sol­vency and re­struc­tur­ing ex­perts con­ducted by Ernst & Young found that 77 per cent of those polled are ex­pect­ing the num­ber of re­struc­tur­ing cases to rise in the com­ing 12 months, with the ship­ping and auto in­dus­tries the most likely to be af­fected. Even as growth slows, un­em­ploy­ment in Ger­many is at its low­est since uni­fi­ca­tion 20 years ago, at least in raw or un­ad­justed terms, even if sea­son­ally ad­justed num­bers are be­gin­ning to inch up­wards.

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