Corporate entrepreneurial and property income is set to grow by an estimated 22 % in 2005. Companies are successfully boosting their profit margins by trimming labor costs without lowering sales prices on the same scale. This is perfectly normal in an economic recovery. However, it is striking how pronounced this trend has been this time round, suggesting that additional factors are at play apart from the business cycle. Globalization, with the integration of major emerging markets into the world economy, has led to intensified competition for the factor labor. This puts downward pressure on wage costs. In addition, corporate profitability had plummeted early this decade.
Germany: Profits puzzle: Soaring corporate earnings amid moderate economic rebound
As a result, companies have put enormous effort into re-establishing their cost-effectiveness. This process took longer and was more intensive than the consolidation seen in previous slumps. Businesses remain wary of abandoning the path of rigid cost management in favor of all-out expansion. This explains why moderate aggregate demand is going hand in hand with substantial growth in earnings. Moving forward, however, cyclical dynamics and earnings dynamics can be expected to move more closely into sync again.
Dr.. Rolf Schneider
Tel.: +49.69.2 63 – 77 90
E-Mail: [email protected]