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German firms brace for tough 2013
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German firms brace for tough 2013

Published: 11 Nov 2012 11:20 GMT+01:00
Updated: 11 Nov 2012 11:20 GMT+01:00

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 over the next two years.

Chief executive Peter Löscher 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 overheads.

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 banking 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 compete 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.

But boosting efficiency is not always about job cuts. "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.

So companies such as carmaker Opel or heavy industry giant ThyssenKrupp resort to measures such as short-time work.

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 percent 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 the seasonally adjusted numbers are beginning to inch upwards.

AFP/bk

The Local (news@thelocal.de)

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Your comments about this article

12:16 November 11, 2012 by grazhdanin
There's no "downturn" at all. It's all made up by politicians and journalists.
19:21 November 11, 2012 by smart2012
well headlines seems a litlle too optimistic and drivem by pre-election propaganda. Opel started alraedy kurtzarbeite, Opel announced the closure of Bochum plant, MAN has started kurtzarbeite, Siemens has already fired app 2K people, Lufthansa, DeutscheBank already announced a plan to cut people, not to forget bankrupcy of Schlecker, Q cell etc etc etc..

Down turn already started 6 months ago, but BILD press has kept hiding it, to support Verkel strategy and keep building deutschland uber alles feeling (and keeping attacking the greek guys who has an influence on economy of 0.00000000000000001%)

what is is making me happy is that finally downturn cannot be hiddne anymore, as all companies stopped hiring and started to cut.

Last unemployement started to increase again, bearing in mind that the number of germany is faked by 400 Euros and temporary agency jobs
19:38 November 11, 2012 by ddiddly
smart2012 - you forget that all that money owed by these indebted countries is now on the tax payers bill. I would not at all be surprised to learn that the high interest risky investments involved peoples pensions. The bailout money was likely to fill in the holes when the well off investors wanted out. The last couple years has likely just been to give people time to take their money out of these crisis ridden countries and plug the hole with tax payer funds.
22:56 November 11, 2012 by zeddriver
Say what! I thought the world and especially the German people. Said that if America would just reelect Obama. All the worlds problems would be instantly solved due to his being the Messiah. Then we could all go back to the freewheeling 60's and whip out the bong pipes and eat all the Doritos (Manna) that will start falling from heaven. As prophesied by Obama and his PR staff.
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