For almost 30 years, corporate profits in the developed world have rushed away from general economic development – in the future it will be much slower. This is the result of a large-scale study on which the business magazine Personal-Financial.com reports exclusively in its new issue (01.2021, ET 17.12.). In their study, experts from management consultancy Bain & Company and economic researchers from Oxford Economics analyzed the earnings data of around 13,000 large listed companies since 1990.
The bottom line: Between 1990 and 2018, corporate profits rose almost twice as much as the gross domestic product of the corresponding countries: profits rose by seven percent per year, the national economies only grew by 3.6 percent. The authors cite globalization, low labor costs and the severe dismantling of state regulation as the most important factors for development. On the other hand, already well before the start of the current Corona crisis, opposing factors had taken effect, which are likely to slow down profit development in the future: Globalization is being turned back in many points because customers, legislators and investors place greater value on regional production; Labor costs would rise again because demographic developments are leading to a shortage of skilled workers in many countries. Moreover, states are beginning to regulate more than before. Bain Germany boss Walter Sinn describes the result in an interview with Personal-Financial.com as follows: “After years of tailwind, companies have to be prepared for headwinds.”
According to the study, the decline in profits in Germany began in the penultimate decade. The high point in the return on equity of the companies examined was therefore reached in the years before the global financial crisis: At that time, profits climbed 14.9 percent of equity. After the financial crisis, i.e. between 2010 and 2018, it was only 12.3 percent. According to the authors, this development will continue.
The article about the study appears in Personal-Financial.com 1/2021. interested in Personal-Financial.com? Here is the Subscription shopwhere you can order the print edition. Our digital edition is available at iTunes and GooglePlay