Eurozone: a disconnect between productivity and profits

Chart of the Week

The latest earnings season has delivered some positive surprises, with many listed companies posting their highest profit margins since the 2008–09 global financial crisis. In national accounts, the sum of all the profits generated by eurozone companies is equivalent to gross operating surplus.

The share of profits in value added reached its highest level since the global financial crisis in the fourth quarter of 2022. Although it has been declining since, it remains at a lofty level.

In the past, and as the chart below shows, the pace of profit growth is generally well correlated with productivity growth. We could reasonably have expected poor productivity in recent months to push profit margins down.


The high inflation backdrop has enabled companies to improve profitability by raising prices despite significantly deteriorating productivity.

In the quarters ahead, the impact of falling productivity on corporate profits is likely to increase. In addition, PMI indices are indicating an economic downturn that could accelerate the decline in profits, forcing companies to cut investment and aggravating the downturn further.


Written on September 15, 2023. This is not an investment advice. Opinions subject to change.

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