Profit Warnings

Anxiety on the Executive Floor

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If my numbers are correct, we might not need to switch this one on.
  • Why it matters

    Why it matters

    New predictions of lower global growth have many senior executives in Germany worried about a possible downturn in profits, especially if the slowdown in the Chinese economy proves to be more than short-lived.

  • Facts

    Facts

    • Prices on Germany’s benchmark DAX index are still about 13 percent below their peak in April.
    • In a new survey, a majority of German business executives believe profits will decline in the next 12 months.
    • Most economists’ predictions are more optimistic, because their models show that a weaker economy in emerging markets will lead to lower oil and commodities prices.
  • Audio

    Audio

  • Pdf

Profit warnings are poison for stock markets. Just ask BASF.

The world’s largest chemicals giant on Tuesday cut its annual forecasts for this year, after an unexpected 10-percent drop in third-quarter profits to €1.6 billion. BASF now predicts a year-over-year decline in revenue and profits for 2015.

The stock price fell nearly 5 percent on opening in Frankfurt, trading at €72.92 at 9:40 a.m. local time and leading a downturn in Germany’s blue-chip DAX index, which was down about 0.5 percent on Tuesday morning.

Chief Executive Kurt Bock blamed the falling profits on a “summer lull” that was larger than usual, and on a weakening global economy: “Major markets like Brazil are in a recession or face lower growth rates, such as China,” he said.

BASF is hardly the only one feeling these effects. For weeks now, analysts and companies alike have been trimming their annual forecasts for major German companies. A whole range of sentiment indicators have also been flashing warning signs of late.

The global downturn has also put a break on Germany’s buoyant growth numbers in the first half of this year – third quarter growth is expected to be sluggish. Europe’s largest economy, it seems, is not immune to the weakness in emerging markets after all.

The key question for economists is: Are we seeing a temporary blip, or the start of a longer-run downturn? Doubts are clearly starting to creep in.

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