German companies brace for difficult 2013

German Finance Minister Wolfgang Schaeuble, center, is reflected in a coffee pot as he talks to Interior Minister Hans-Peter Friedrich, right, at a the weekly cabinet meeting at the chancellery in Berlin on Oct. 31, 2012. 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. AP PHOTO/MARKUS SCHREIBER

FRANKFURT, Germany—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 billion euros ($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 billion euros 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 euros 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 billion euros 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 euros 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 rationalization, 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 specialized 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.