Valletta [Malta], March 22: Many major European companies across various sectors saw a sharp profit decline in 2024, while the defense industry, in contrast, has thrived, benefiting from increased military spending by European countries.
The decline in corporate profits is largely driven by rising production costs and Europe's sluggish economic recovery, with the tariff war between Europe and the United States further exacerbating the situation.
The escalating transatlantic economic and trade tensions are expected to further strain European companies, making it more challenging to regain momentum for higher profits this year.
However, the defense industry is poised for continued growth, as the European Union (EU)'s 800-billion-euro (867-billion-U.S.-dollar) "ReArm Europe" plan is expected to significantly boost defense spending across the bloc.
PLUMMETING PROFITS
From the automobile and energy sectors to aviation and banking, many major European companies reported a decline in net profits in 2024 compared to 2023, amid weak demand and rising operational costs.
Among all the industries, the automobile sector was the hardest hit with major German automakers witnessing drastic declines in net profits.
Volkswagen Group's revenue rose slightly to 324.7 billion euros from 322.3 billion euros in 2023, but its net profit plunged 30.6 percent year-on-year to 12.4 billion euros.
The decline was attributed to a "significant increase in fixed costs" and one-off expenses totaling 2.6 billion euros, primarily related to restructuring, the company said.
BMW also faced a tough year, with net profit falling 36.9 percent to 7.68 billion euros, while revenues dropped 8.4 percent to 142.4 billion euros.
"A challenging competitive environment and macroeconomic, trade and geopolitical developments could all have a significant impact on business performance," the company said in a statement.
In the energy sector, major European oil giants reported lower-than-expected earnings in 2024 due to declining crude prices and weak fuel demand.
British Petroleum's (BP) net profit after tax declined to 381 million dollars in 2024, dropping 97 percent from 15.2 billion dollars in 2023.
"We now plan to fundamentally reset our strategy and drive further performance improvements, all in service of growing cash flow and returns," BP Chief Executive Officer Murray Auchincloss said.
TotalEnergies, a major French oil company, also suffered a sharp decline in earnings, with its adjusted net income falling 21 percent to 18.3 billion dollars from 23.2 billion dollars in 2023.
Similarly, British oil giant Shell saw its annual profit drop significantly, with adjusted earnings of 23.7 billion dollars for 2024, down from the previous year's 28.3 billion dollars.
The aviation sector also faced challenges. German airline giant Lufthansa reported a net profit of 1.38 billion euros in 2024, down 18 percent from 2023.
"Strikes weighed on the passenger airlines," Lufthansa said in a statement, citing "significantly higher costs, especially in Germany," as well as "further delays in aircraft deliveries."
The banking sector saw a significant decline in profits in 2024. Germany's largest lender Deutsche Bank reported a 28 percent drop in net profit to 3.5 billion euros, despite a 4 percent year-on-year revenue increase to 30.1 billion euros.
DEFENSE BUDGETS SURGE
Europe's defense budgets have surged since the Russia-Ukraine conflict began and are set to rise further as the EU responds to U.S. demands for greater defense burden-sharing. This boost in spending has left major European defense firms flush with cash.
Italian defense group Leonardo reported a net profit of 1.16 billion euros in 2024, a year-on-year increase of 63 percent. Its revenues rose 11 percent to 17.8 billion euros, with growth across nearly every segment. The company projects its order backlog to reach 26.2 billion euros by 2029, with annual revenues expected to climb to 24.0 billion euros.
Other European defense companies are also seeing strong growth. Germany's Rheinmetall announced a 38 percent jump in net profit in 2024 to 808 million euros. Its order backlog reached a record high of 55 billion euros, up 44 percent from the previous year.
France's Thales defense and technology firm posted a 7 percent increase in adjusted net income to 1.9 billion euros. "We are starting 2025 with confidence and determination and a positive outlook for the vast majority of our activities," the company's Chairman and Chief Executive Officer Patrice Caine said.
European defense companies remain optimistic about their future performance, as defense budgets across the continent continue to rise.
On Wednesday, the European Commission introduced a comprehensive plan to enhance EU defense capabilities, aiming to bolster military readiness and reduce reliance on non-EU allies amid uncertainty over future U.S. support for the North Atlantic Treaty Organization (NATO).
Germany's Bundestag, the lower house of parliament, on Tuesday approved a major constitutional amendment to loosen the country's strict "debt brake" policy, paving the way for increased spending on defense, infrastructure and climate neutrality.
As a result, Rheinmetall forecasts its 2025 annual sales to increase by 25 to 30 percent on a group level and by 35 to 40 percent in its defense business.
UNCERTAINTIES AHEAD
The U.S. administration has upended global trade with tariffs and threats against both allies and rivals. Amid mounting concerns over the economic fallout of a possible "Trumpcession," uncertainties are expected to further hamper the European economic recovery.
A possible recession in the United States could influence the European economy, because the EU will not be immune to the consequences, said Vassilios Psarras, an economist at Brussels-based DeHavilland Europe.
Christine Lagarde, president of the European Central Bank, said it was impossible to guarantee that policymakers would meet the 2-percent inflation target in the short term, citing global volatility.
Major companies have expressed concerns about the impact of the uncertainties on their operations. BMW warned that it would take a big hit from trade wars triggered by the United States this year. Its finance chief Walter Mertl said that U.S. tariffs on steel and aluminum would hit the group's profit margins.
Volkswagen now aims to achieve a 6.5-percent operating profit margin by 2029, instead of next year. "Our outlook reflects the global economic challenges and the profound changes that are happening in the industry," said Arno Antlitz, chief financial officer of Volkswagen.
With a dim profit outlook, some European companies have begun cutting jobs. German industrial giant Siemens announced plans to cut around 6,000 jobs worldwide, including 2,850 in Germany. The company has been suffering from high inventory levels at customers and dealers, which has led to weak demand and poor capacity utilization.
German bank Deutsche Bank also plans to cut around 2,000 jobs this year as part of a broader strategy to reduce costs.
The tariff measures imposed by the U.S. government on Europe will make the European economy "even worse" as it has been sluggish for years, said Croatian political analyst Robert Frank.
"The tariff war will turn into a trade war if it continues like this. There will be no winner in this war, everyone will lose; the European economy has no chance of recovering in the foreseeable future," he said.
Source: Xinhua News Agency
