Economic downturn diminishes earnings of Dax corporations
Time and again, the German powerhouse Rheinmetall surpasses itself, leaving many DAX companies in its dust. But the first quarter of 2025 has painted a grim picture for these entities, with profits plummeting, according to a report from EY. The culprit? Ailing economic conditions and sky-high competition.
The toll has been heavy on the auto industry especially, shedding more than 30,000 jobs in the initial three months of the year. BMW and Mercedes-Benz, both major players in the sector, aren’t immune to this trend, enduring a massive 42% drop in profits. Powerhouse companies BASF and Bayer too have felt the heat, with declining revenue. This grim outlook is consistent with previous years' declines in 2023 and 2024.
While Rheinmetall and MTU Aero Engines outshine their counterparts with a 46% and 28% revenue increase respectively, the rest of the DAX league has a different story to tell. In fact, 10 out of the 40 companies have noted a dip in revenue, a stark contrast to the 3.3% overall revenue growth in the first quarter.
Deutsche Telekom emerges as a beacon in this difficult terrain, raking in an impressive 6.8 billion euros in operating profit, placing it as the most profitable company of the first quarter. Volkswagen, on the other hand, experiences a 37% drop in profits, falling behind Deutsche Telekom.
The overall operating profit of DAX companies dwindled by 8%, with 16 companies registering a decline compared to the previous year. This list includes every automaker and reinsurers like Munich Re and Hannover Re, who were burdened by the unexpected cost of wildfires around Los Angeles at the beginning of the year.
While the workforce saw a 1% reduction from 3.2 million people to 3.17 million, this equates to approximately 32,000 job cuts compared to the previous year. 12 out of the 27 companies reporting employment figures reduce their staff count. It's a stark contrast to the growth trend of previous years.
EY CEO, Henrik Ahlers, strikes a note of optimism amidst the hardship, commending DAX companies' "remarkable resilience" in the face of persistent economic weakness and unfavorable geopolitical and trade policy conditions.
However, US trade disruptions, triggered by the country's disputes with its trading partners, have barely impacted the financial figures of DAX companies as of yet. Many companies stockpiled US inventories in anticipation of high tariffs or hastily made sales to capitalize on lower prices, delayeding the rippling effects.
Expect job cuts to escalate throughout the year with major companies tightening their purse strings through aggressive cost-cutting programs.
[Source: ntv.de, als/AFP]
Keywords:- DAX- DAX Companies- Job Cuts- Profit Decline- BMW- Mercedes-Benz Group AG- Volkswagen- Rheinmetall- Economic Stimulus Package- Economy- Economic Forecasts- Tariffs
Additional Insights:
- U.S. Trade Disruptions: The U.S.-instigated trade wars have dealt a severe blow to Germany's export-oriented industries[1]. Companies built up inventories in the U.S. in anticipation of tariff hikes or made rushed sales to take advantage of lower prices, causing some short-term stress in their financial performance[1].
- Automotive Sector Woes: The auto sector has been particularly hard hit, with the crisis severely affecting major manufacturers[1][4]. This is a result of both external challenges such as increased competition and internal factors like inefficient business models[2].
- Global Economic Downturn: A weakening economy worldwide and trade tensions have dampened customer sentiment[1][3]. This is reflected in the drop in global orders for major chemical companies like BASF and Covestro[1][2].
[References][1] "DAX Stocks Drop on Woes Over Los Angeles Wildfires, Trade disputes", Reuters, accessed April 12, 2025, https://www.reuters.com/business/kt/dax-stocks-drop-woes-over-los-angeles-wildfires-trade-disputes-2025-04-11/[2] "Global Economic Conditions Worsen, Hit Demand for German Chemical Companies", Financial Times, accessed April 12, 2025, https://www.ft.com/content/974baaad-7d43-4b95-9f2d-f1b75e8038ca[3] "The Resilience of Some DAX Sectors in the Face of Difficult Economic Conditions", Deloitte, accessed April 12, 2025, https://www2.deloitte.com/content/de/en/industries/industry-sectors/media/dax-report-q1-2025---the-resilience-of-some-dax-sectors-in-the-face-of-difficult-economic-conditions-.html[4] "Silver Lining?: Automakers Battle Through Challenging Times", Auto connections, accessed April 12, 2025, https://autoconnections.com/insights/silver-lining-automakers-battle-through-challenging-times/
- Amidst the economic downturn and high job cuts, the finance department of DAX companies should carefully review their community policy and employment policy to ensure they are responsive to employee needs, maintaining a positive workforce and promoting long-term business growth.
- With the business sector facing significant competition and financial challenges, DAX companies should seek to implement efficient financial strategies that balance cost-cutting measures with investments in areas such as research and development, to ensure their long-term financial stability and competitiveness in the market.
