Despite recent sales records, Germany’s stock market heavyweights are increasingly feeling headwind. Growth weakened in the second quarter and was below the inflation rate overall, according to an analysis by the auditing and consulting firm EY.
Henrik Ahlers, CEO of EY Germany, expects the second half of the year to be even more difficult for the Dax companies. “Growth impulses are not in sight.” In addition, the low sales growth is being more than eaten up by the persistently high inflation, “so that we are de facto already dealing with negative growth in many cases.”
In the second quarter, the turnover of the Dax companies rose according to the evaluation compared to the same period last year by a total of 1.1 percent to around 446.2 billion euros and thus to the highest value in a second quarter since the beginning of the evaluation in 2014. The operating result of the 40th Companies improved overall by 2.7 percent to almost 40.5 billion euros – it was the second highest value in a second quarter. 22 companies increased their profits, while 18 companies reported a decline.
Production relocation abroad?
According to Ahlers, the cost problem in Germany is becoming more and more urgent: “The high energy prices in particular mean that investments are being postponed and relocation of production abroad is being considered.” In addition, there would be complex and lengthy approval procedures. “There is no sign of a reduction in bureaucracy.”
Business associations are already warning of creeping deindustrialization, since companies could relocate their production abroad due to high energy costs. The International Monetary Fund expects Germany to be the only economy among more than 20 countries and regions examined in which economic output will fall slightly this year. Calls for a government economic stimulus program have recently become louder.
Spring revival failed
In winter, German economic output shrank for two consecutive quarters compared to the previous quarter. The hoped-for spring revival failed to materialize, and gross domestic product stagnated in the second quarter of 2023 according to provisional figures from the Federal Statistical Office. Added to this is the weakness of the Chinese market, which is important for many exporters.
Chemical companies in particular had recently reported falling demand and corrected their expectations downwards. On the other hand, the German car companies benefited in the second quarter from the decreasing shortage of chips and high prices. According to the data, Volkswagen, Mercedes-Benz and BMW shone with operating profits of in some cases significantly more than five billion euros and thus pushed the overall balance sheet of the Dax companies. Deutsche Telekom was also one of the top earners with 5.2 billion euros.
“But the wind is also increasingly blowing in the face of the automotive industry,” said EY partner Mathieu Meyer. In view of the high inflation, increasing concerns about the economy and higher interest rates, customers are becoming less willing to buy.
Number of employees mostly increased
Despite the weak economic situation, companies have so far held on to their workforce overall. As of June 30, almost 3.8 million people were employed by the 35 Dax companies that provided information. That was around 43,000 or 1.2 percent more than at the same time last year. Only twelve companies reported a lower number of employees than in the previous year. Meyer does not expect massive cuts either. “However, for the time being one will be much more careful with new hires.”
