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 2025. 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 May 2020 issue of Consensus Forecasts – G7 and Western Europe.
|Consensus Forecasts – G7 and Western Europe|
Corporate Profits from the May 2020 Survey
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.
France:- Gross Trading Profits of non-financial companies and individual businesses, before interest and taxation.
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.
Corporate Profits – Hammered by the pandemic
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 (below) which shows recent corporate profits growth and forecasts for the United States, the United Kingdom (excluding North Sea oil and gas revenues) and Canada, with all four 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.
All economies’ definitions of corporate profitability have been hit by the pandemic. Restrictions on movement (and people’s ability to transmit the virus) have braked global economic activity. Service industries reliant on displacement (tourism, airlines, bricks-and-mortar retail, education, restaurants, concerts, etc.) have been especially pummelled by nationwide lockdowns. Reducing staff costs can offset some lost profit margins, but overhead costs (like rental space) will likely also be cut. A rebound in forthcoming months (and even years) is by no means assured. With no vaccine yet in distribution (some speculate mid-2021; mass-vaccination will lag that date), concerns remain about restaurants, or sitting on a plane breathing recycled air supply. Social-distancing guidance will lower footfall in stores and margins. Shelter-at-home orders and remote working (for some) have upped consumers’ use of the internet, in online retail or internet banking, for example, and many industries will be assessing how far the pandemic changes our shopping and social habits on a permanent basis. Amazon has gained from increased deliveries; its (and other) entertainment streaming services have jumped in popularity due to at-home customers. However, gains in that sub-sector will not offset the loss in aggregated overall earnings. US corporate profits could drop by -15.1%. A 12.8% rebound is pencilled in for 2021 before profits growth moderates to between 4-6%. Some industries will have to operate with lower profits for the foreseeable future. US and Canadian profits will take a big hit from the collapse in oil prices. North American shale producers are dealing with a massive supply glut and, at one point, WTI in negative territory, which explains some of Canada’s expected -25.2% profits drop. Fiscal stimulus measures are attempting to support corporate activity via financial aid and deferred tax payments, but it is unclear how long this can continue pending viable medical solutions.
A portion of the text from Consensus Forecasts – G7 and Western Europe, May 11, 2020.