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CORPORATE PROFITS GROWTH

In addition to the regular forecasts which we receive each month for the G-7 countries, we also undertake special surveys of corporate profits twice a year over a 5-year horizon in our Consensus Forecasts™ publication. As is our usual practice, the data is measured as the average percentage change over the previous calendar year. Not surprisingly, the individual profits definitions differ according to local custom and data availability. However, following discussions with forecasters from our country panels, the definitions outlined below were considered as the most widely accepted economic measures of corporate profitability. The resulting Consensus Forecasts™ represent mean averages of the panelists' forecasts.

Our surveys for Corporate Profits cover each of the countries listed below, and are conducted twice a year in May and November. The table and text commentary below represents a portion only of this special survey taken from our November 2012 issue of Consensus Forecasts. To view a sample issue of Consensus Forecasts please click the "Download Sample Issues" button below.

Consensus Forecasts
United States Italy
Japan Canada
Germany Norway
France Spain
United Kingdom Sweden

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Corporate Profits by Country
 
Historical Data
Consensus Forecasts
* % change over previous year 2009 2010 2011 2012 2013 2014 2015 2016 2017
 United States
7.5
26.8
7.3
5.9
3.2
5.0
4.2
3.2
3.2
 Japan
-35.3
68.1
-6.0
2.2
5.9
-2.4
2.4
5.3
3.3
 Germany
-13.5
10.5
2.7
0.7
1.8
4.0
3.5
3.3
2.8
 United Kingdom
-6.5
5.8
7.7
1.1
3.3
4.3
5.6
5.8
5.0
 Canada
-33.1
21.2
15.4
0.0
3.9
4.6
5.2
5.4
4.7
 Sweden
-27.1
55.2
3.7
-8.5
-5.0
9.0
6.5
6.5
2.5

Definitions (all in nominal terms and all on a national accounts basis except Japan and Norway)

United States:- Pre-tax Corporate Profits with capital consumption and inventory valuation adjustment, i.e. after allowance for depreciation and for the impact of inflation on inventories.

Japan:- Pre-tax Corporate Recurring Profits with capital consumption and inventory valuation adjustment, all industries excluding financial and insurance.

Germany:- Gross Entrepreneurial and Property Income, excludes all wage and salary income but includes that from interest and dividends.

United Kingdom:- Private Non-Financial Corporate Trading Profits, i.e. income (excluding North sea oil and gas activities) before tax, excluding all income of overseas subsidiaries and before allowance for capital depreciation but net of stock appreciation.

Canada:- Pre-tax Corporate Profits, excluding interest and investment income and before allowance for either the impact of inflation on inventories or capital depreciation.

Sweden:- Gross Corporate Profits (mining and manufacturing companies), before interest and taxation.

Peaks and troughs in corporate profitability tend to precede those of the business cycle, with profit growth rates often peaking early in an economic expansion and then easing again before the downswing is fully underway. This leading cyclical pattern shows recent corporate profits growth for the United States, France, the United Kingdom (excluding North Sea oil and gas revenues), Canada and Spain, with all five traversing very different paths over the next 5 years. The US, German, French, UK, Canadian and Spanish series, as measured by the national accounts, are each based on a large sample of firms and are broadly comparable.

We also include quarterly forecasts for corporate profitability in the United States through to the second quarter of 2014. The US saw robust profits growth on a y-o-y basis in the first half of 2012, but in annualized and q-o-q terms, corporate earnings growth got off to a rocky start. Moreover, despite an expected upbeat result in Q3, the final quarter of this year is likely to be dented by the impact of Hurricane Sandy which shut down some operations on the East Coast. The rebound in quarterly profitability next year is expected to be modest. Adverse external headwinds are not helping export prospects: the Euro zone and Japan are hurtling rapidly into recession while China's growth impetus has slowed. Moreover, the expiration of Bush-era tax cuts and tighter fiscal policy will likely cause US earnings to fall in Q1 2013 as domestic demand retrenches. Over the longer-term, our panel's annual profits expectations for the US suggest a further moderation in profits growth after 2014. French, UK, Canadian and Spanish corporate earnings are to outpace US profitability (which is not expected to see double-digit rates of growth again over the five-year forecast horizon). This is surprising considering that France is very much exposed to the Euro area sovereign crisis and faces its own extended period of fiscal austerity, including higher taxes on capital gains and the top rate of income. Corporate profits are likely to see two straight years of contraction before a 2013 recovery. Meanwhile, in Canada, strong commodity prices swelled the coffers in 2010 and 2011. This year, though, pre-tax profitability likely grew by a negligeable 0% on the back of shaky US demand and industrial activity (three-quarters of Canadian exports head south of the border). Next year's rebound is back in line with the US profit cycle, though. By contrast, Japan has recently seen a sharp downturn in economic fortunes, on the back of waning external demand, coupled with China's recent boycott of some goods. Moreover, a consumption tax hike (of 5% to 8%) earmarked for Q2 2014 will further erode profitability. 2016 should see a marked rebound, however. Elsewhere, the Euro area debt crisis and slowdown in the US and Asia is weighing heavily on forecasts for Germany where the profits cycle is expected to be muted at best. Part of this could be due to policies to retain workers instead of harsh immediate cost-cuts in response to a downturn in demand. Spanish earnings projections, by comparison, could reflect "productivity gains" as job cuts, coupled with austerity, eventually boost profits growth over the medium-term.

A portion of the text from Consensus Forecasts, November 12, 2012.