Struggling DAX Giants See Lower Profits and Job Cuts Amid Economic Challenges
Major businesses experience decreased revenue earnings. - Decreased Profits Reported by The Dax Corporation
It's a rough ride for Germany's top stock market companies, with slumping profits and thousands of job losses on the horizon. The 40 companies in the Dax index are feeling the heat of the economic downturn and increased global competition, according to a new analysis by EY.
In the first quarter of 2025, the Dax companies' (excluding banks) combined turnover climbed by 3.3 percent to €458.9 billion. However, ten companies saw a decrease in sales, including major players like BMW, Mercedes-Benz, BASF, and Bayer.
Insurance companies take a hit due to wildfires
Sixteen out of the Dax companies reported lower operating profits than the previous year, including all car manufacturers and the two reinsurers, Hannover Re and Munich Re. These companies bore the brunt of the financial impact from the wildfires around Los Angeles at the start of the year.
Despite the overall 8.1 percent shrinkage in the operating profit (EBIT) before interest and taxes to €44.8 billion - a drop from €48.7 billion the previous year - many Dax companies displayed resilience amid economic woes, geopolitical crises, and the trade dispute with the US.
Thousands of jobs slashed
The employment trend also demonstrates downward mobility, according to EY. The number of employees at the 27 Dax companies who provided figures fell by 1 percent to 3.17 million, resulting in approximately 32,000 job cuts over the past year.
Trade tensions with the US continue to pose a challenge
Henrik Ahlers, CEO of EY, acknowledges the remarkable resilience displayed by many Dax companies, yet stresses that a significant majority still managed to increase their turnover. However, the impact of US tariffs has yet to be reflected in the balance sheets.
"Many companies have stockpiled their inventories in the U.S. in anticipation of high tariffs, and US customers have also made purchases in advance to benefit from lower prices," Ahlers explains. A clear picture of the situation will only emerge in the second half of the year. The uncertainty surrounding US tariffs remains a significant challenge, particularly for export-focused industries.
Boom for defense, slump for car manufacturers
While some Dax companies recorded substantial turnover growth, such as Rheinmetall with a 46 percent boost in revenue and engine manufacturer MTU Aero Engines with a 28 percent increase, car manufacturers faced losses. Overall, the car manufacturers listed on the Dax observed a 2.5 percent drop in turnover and a 42 percent decrease in profits.
The highest operating profit in the first quarter was achieved by Deutsche Telekom, closely followed by Allianz and Siemens. Only one Dax company, Porsche Holding, reported an operating loss.
Factors Impacting the Economy
- Trade Tensions and Tariffs: The US trade policies, including tariffs on German exports, have significantly affected various industries, leading to increased costs and logistical challenges.
- High Energy Prices: Energy costs, in part due to the Ukraine conflict, have increased production costs for numerous sectors, such as the automotive industry.
- Global Economic Slump: The economic slowdown in major markets like China has decreased demand for German exports, further exacerbating the challenges faced by these companies.
- Sector-Specific Issues: The automotive sector has experienced a sharp decline in profits, with a 42% drop in the first quarter of 2025, primarily due to U.S. trade disruptions and increased competition. The insurance sector, while not as dramatically affected, has benefited from broader market trends.
- Workforce Adjustments: In response to the economic downturn, companies have been forced to cut jobs, leading to around 32,000 job losses in the first quarter of 2025, a reversal of years of workforce expansion.
- Vocational training could be a vital solution for DAX companies to address the job losses, as investing in the skills and talent of the workforce can foster adaptability and boost productivity amid economic challenges.
- As the Dax companies navigate through the economic downturn, additional sources of finance from the EC could be beneficial for business expansion, especially in sectors deeply impacted by trade tensions and high energy prices.
