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 2023. 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 2018 issue of Consensus Forecasts.
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.
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, Germany, 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.
We also present, at the bottom of this page, quarterly forecasts for corporate profitability in the US through Q4 2019. These are shown in current US dollars and in terms of annualized, quarter-on-quarter and year-on-year percentage changes. The annual US corporate profits series (defined in the national accounts as pre-tax corporate profits with inventory valuation and capital consumption adjustments) declined in 2015 and 2016, impacted by the strength of the US dollar which curbed revenues of export-dominated companies. However, the recovery in oil prices, and upturn in domestic shale operations on the back of that, have helped to shore up last year’s profits, especially for energy companies. Meanwhile, Q1 earnings reports from S&P 500 companies suggested some of their best gains in over seven years. However, some downside risks are weighing on the US profits outlook. Trade tensions, along with rising borrowing and raw materials costs could erode profitability. West Texas Intermediate hit US$72 on May 17 (see more on oil price forecasts). Annual profits growth is expected to accelerate by 4.9% this year, boosted by the tax reductions. A dip in the profits cycle in 2020 coincides with a slowdown in fiscal stimulus along with a growth slowdown amid higher wages and inflation, a tight labour market and rising interest rates. A profits rebound is expected in 2021. The prospect of tax cuts are also helping French profits forecasts, while the recovery in commodities has boosted Canada’s profits profile. The UK outlook appears much less favourable than prior years, overshadowed by prolonged uncertainty over Brexit. The government’s divided stance has hindered progress on talks with the EU and prompted businesses to postpone crucial investment decisions. German corporate profits should be supported by robust external competitiveness.
A portion of the text from Consensus Forecasts – G7 and Western Europe, May 14, 2018.