Strong euro hits German firms

The ongoing appreciation of the euro against other key currencies has been weighing heavily on Germany's biggest companies, a report by consulting firm Ernst & Young revealed Friday.

It showed that out of the 30 firms listed in the DAX index 16 suffered declining turnover volumes, with overall third-quarter results dropping by 1.6 percent to 289 billion euros ($388.4 billion) year-on-year.

The DAX companies' operating profits shrank by 7 percent to 24.1 billion euros, citing figures adjusted for one-off write-downs by Deutsche Telekom.

Caught unawares

By the end of September, the euro had gained between 15 and 25 percent against the local currencies in important German export markets such as Brazil, India and Turkey. It had also gained about 5 percent against the US dollar in a year-on-year comparison.

"The marked appreciation of the euro took many companies by surprise, they'd rather expected an opposite trend, Ernst & Young partner Thomas Harms said in a statement, mentioning that German chemicals giant BASF had been caught on the wrong foot alongside many others, including industrial gas producer Linde and Europe's largest carmaker, Volkswagen.

The study said many German firms simply hadn't taken precautionary measures such as currency hedging to offset the impact of a strong euro on their export earnings.

But generally there has been a trend to resort to what pundits have come to call "natural hedging." This refers to firms stepping up production at facilities located outside of the eurozone, with a view to circumventing potentially costly currency exchanges involved in export operations.

hg/pfd (Reuters, dpa)