Confirmation last week that Germany has slipped into a recession comes after a string of profit warnings from the country’s stable of corporate titans that suggest the worst is yet to come.
Government data for the world’s top exporter on Thursday showed GDP falling for the second consecutive quarter from July to September, putting Europe’s biggest economy in a technical recession.
While the statistics paint an already bleak picture, recent comments from Germany’s many export-dependent firms show that conditions on the front line of the global slowdown may get worse before they get better.
“Late 2008 and early 2009 could well be worse. Germany — and the eurozone — have to get ready for a serious recession,” analyst Holger Schmieding from Bank of America said.
First came Daimler, the maker of pricey Mercedes saloons as well as trucks, buses and the tiny Smart car, which disclosed on Oct. 23 a 66 percent drop in operating profits.
“We are living in extraordinary times,” chief executive Dieter Zetsche said.
Fellow carmaker BMW also looked to be experiencing a head-on collision with the global slowdown, saying last week that conditions were so uncertain that it could no longer give a serious profit forecast for the year.
BMW has undertaken a deep restructuring of its personnel and aims to eliminate 8,100 posts by the end of the year and has so far announced that it is cutting output by 65,000 vehicles.
Porsche reported a 39 percent slump in sales in North America and in recent weeks has announced that it would produce fewer cars and extend the usual Christmas production break at its factories.
Volkswagen, meanwhile, which for the most part sells more affordable cars for the masses, appeared to have held up better than its posher rivals. But Europe’s biggest carmaker did warn on Oct. 30 that next year will be tough.
MAN, which makes heavy trucks and diesel engines, said the same day that its order books were getting thin, particularly for the juggernauts that transport much of the world’s goods.
Further down the supply chain, autoparts maker Continental announced it was laying off 5,000 temporary workers, and other areas of the “real” economy are also obviously reeling.
SAP, the world leader in professional software, which had already said a few weeks earlier that it had suffered a “brutal” drop in orders, lowered this year’s financial targets on Oct. 28.
BASF, the world’s top chemicals group, also said it was feeling the pinch.
“The impact of the global financial crisis on the real economy is speeding up and hitting harder,” BASF chairman Juergen Hambrecht said and the firm cut its profit forecast for this year and announced 1,000 job cuts.
Airline Lufthansa said it was being hammered by the “considerable strains” of the slowdown, while reinsurers Munich Re and Hannover Re reported plunging profits.
Siemens, Europe’s biggest industrial conglomerate which makes everything from light bulbs to power stations, said its profit targets for next year had become “clearly more ambitious.”
Logistics company Deutsche Post, media giant Bertelsmann and retail group Metro have also highlighted how tough conditions are, as have washing powder giant Henkel and fertilizer blue chip K+S.
There have been exceptions, however, with Linde, the world’s biggest industrial gas group, and Deutsche Telekom, Europe’s biggest telecom company, both said they are yet to be affected.
German Chancellor Angela Merkel last month launched a raft of measures aimed at stimulating the economy including tax breaks and state-backed loans for small and medium-sized firms, but many experts say that these do not go far enough.
These include a panel of economic advisors to the government that on Wednesday forecast zero growth in Germany next year. In their report, they dismissed Merkel’s efforts as a “hotch-potch of isolated projects designed to give the impression that the government is doing something.”
“Unfortunately, the German government continues to reject the idea of a genuine fiscal stimulus,” Schmieding said. “While we are skeptical that simply spending more money would help very much, the case for tax cuts, notably for aggressive cuts in the job-destroying payroll taxes, has never been stronger, in our view.”
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