Volkswagen said on Friday its core profits had fallen by more than half in the second quarter as a strong euro, new product costs and slumping demand took their toll, Reuters reported.

According to the news agency, VW said its operating profit fell to 616 million euros ($US708 million) in the three months to the end of June from €1.4 billion a year ago. Its pre-tax profit fell to €679 million – a narrower decline than analysts had expected.

The company said its financial result, which feeds into pre-tax profit, was boosted by strong contributions from joint ventures and write-ups on equity investments, Reuters said.

“It is not as awful as many people were expecting and the actual figures are not so far from the forecasts. In some parts they are a touch better,” market analyst Christian Schmidt at Helaba told Reuters.

The news agency noted that VW said earnings should improve in the second half as its recently-launched Touran minivan and Touareg SUV, as well as the forthcoming fifth-generation Golf, buoy sales, although it said profits in the year as a whole would be significantly lower.

The average of forecasts from 25 analysts surveyed by Reuters put VW’s operating profit in the second quarter at €730 million, while pre-tax profit was seen at around €640 million.

Reuters noted that, like its rivals, VW has been battling with shrinking car markets in Europe and the United States, but it is further saddled by the cost of a massive product overhaul.

French peer PSA Peugeot Citroen, Europe’s second-biggest carmaker, also posted a sharp slide in first-half profits on Thursday and cut its full-year forecasts due to a strong euro and shrinking demand in western Europe, Reuters noted.