In Germany attention focuses mainly on the major listed corporations, the 30 DAX companies. After the surge in profits of between 60 % and 100 % (depending on definition) seen in 2004, significant gains were also recorded in 2005.
Germany: Earnings 2006 still on upward track
By historical standards, corporate earnings currently enjoy a high share in GDP. The return on real capital – as measured by operating earnings in relation to capital stock – is also high and the underlying trend has been up in both the euro area and the USA since the early 1980s. There is much to suggest that structural reasons lie behind the trend towards rising earnings.
Regardless of the longer-term trend, the question arises as to how current business activity influences earnings growth. Our calculations suggest that operating earnings and self-employed incomes are likely to rise by 7.8 % in 2006 (up from + 5.8 % in 2005). The picture is similar for non-financial corporations where operating earnings in 2006 could return to near double-digit growth.
All in all, the strengthening economy looks set to fuel accelerated earnings growth in Germany compared with 2005. At the macroeconomic level at least, concern about sliding profit margins is therefore unfounded.
Dr. Rolf Schneider
Tel.: +49.69.2 63 – 77 90
[email protected]