forthcoming>>

CORPORATE PROFITS GROWTH

In addition to their regular forecasts, country panellists were asked to provide estimates of the growth of corporate profits in their respective economies between now and 2020. 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 panellists' forecasts. Readers should note that the groups of survey respondents may be smaller than those listed on our main country forecast tables.

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 2015 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

Download Sample Issues



Corporate Profits by Country
 
Historical Data
Consensus Forecasts
* % change over previous year 2012 2013 2014 2015 2016 2017 2018 2019 2020
 United States
10.0
2.0
1.7
0.0
4.0
2.7
4.2
3.9
3.7
 Japan
8.8
19.7
10.9
9.4
6.9
2.7
2.9
4.2
3.8
 Germany
-4.1
0.8
3.8
4.0
3.8
3.2
2.9
3.0
2.6
 United Kingdom
-0.1
10.1
10.3
5.1
4.3
4.0
3.1
2.9
4.3
 Canada
-4.2
-0.6
8.8
-10.8
5.2
6.6
5.6
4.9
3.5
 Spain
0.1
-1.2
0.4
3.8
3.1
3.8
4.4
4.3
4.0

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.

Spain:- Gross Corporate Profits (whole economy), 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 is represented in the chart (right) which shows recent corporate profits growth and forecasts for the United States, Germany, the United Kingdom (excluding North Sea oil and gas revenues) and Canada, with all five traversing somewhat similar 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 present, at the bottom of this page, quarterly forecasts for corporate profitability in the United States through Q2 2017. These are shown in current US dollars and in terms of annualized, quarter-on-quarter and year-on-year percentage changes. 2013 and 2014 were weak years for US corporate profit growth (defined in the national accounts as pre-tax corporate profits with inventory valuation and capital consumption adjustments). Indeed, this year is projected to show zero growth in corporate earnings (see table, page 28). On a q-o-q annualized basis (table below), pre-tax profits declined by a massive -21.1% in Q1 2015, dented by harsh winter weather, not to mention the West Coast ports dispute which disrupted export-import supply chains. The sharp collapse in commodity values was hitting a low point around this time, too, badly affecting energy sector profits. Q2 did see a rebound in earnings but going forward, quarterly forecasts remain somewhat muted, as illustrated by the chart, below right. Moreover, on an annual basis, after a +4.0% turnaround estimated for 2016, the US profits expansion is projected to fluctuate below 5% over the forecast horizon, moderating to 3.7% in 2020. Despite a near-term improvement in jobs and consumer activity, the external outlook in the wake of China's slowdown is worrying export-oriented companies. Indeed, many firms in general remain extremely cautious about spending, highlighting the ongoing economic uncertainty in the wake of the 2008 crisis which destabilized the global financial system. With the Fed expected to raise borrowing costs soon, many companies are adopting a wait-and-see approach. This means production and hiring plans are being put to one side or implemented on a smaller scale. Weak investment and slower productivity growth will have an adverse impact on longer-term growth potential and, in turn, profits. Meanwhile, forecasts for Canadian and Norwegian corporate profitability have been badly affected by the plunge in commodity prices, as both countries are major energy exporters. Norwegian earnings are expected to contract for three consecutive years from 2014 onwards as the oil sector retrenches. In Canada, after an initial collapse in profitability this year, a rebound is projected for 2016 and 2017 before easing slightly thereafter (see above chart). Recovering commodity prices will hopefully support decent profits growth going forward, although the economy also faces challenges from the shaky external environment. An expected rise in fiscal spending next year could help. Japanese corporate profits have been helped by a stronger US dollar and the Bank of Japan's QE policies, hence our panel's strong forecast for this year. However, firms are clearly sitting on profits rather than spending, judging by the uncertain external outlook and weak growth prospects.

A portion of the text from Consensus Forecasts, November 9, 2015.