Weekly Economic Briefing

Profiting from higher prices

25 October 2016

Global Overview

  • Corporate profit growth is a function of the broader economic environment. An improving outlook for global nominal growth – underpinned by stronger real activity and higher inflation – bodes well for near-term earnings trends across the world’s major regions.
  • The US experienced a significant corporate profit recession over the past two years, weighing heavily on business investment in the process. However, higher oil prices, a more stable US dollar and strengthening industrial demand all point to a modest revival in the quarters ahead.
  • Profit growth in the UK was on a weakening trend even before the referendum. The Brexit process will throw up additional headwinds in some sectors.
  • After adjusting for lumpy Irish profits, corporate profits in the Eurozone remain on an upward trend, while in Japan the mild upturn in corporate fortunes is set to continue.
  • Stimulus measures in China have helped to stabilise corporate revenues, especially in the SOEs. However, the recent recovery in profit margins may stall if underlying cost pressures are realised.


Undistributed corporate profits have taken a bigger hit than dividends during the earnings recession. Fortunately, many of the factors that have been weighing on profits are fading.



Corporate profit growth has been dampened by slower nominal growth and sector-specific shocks over recent years. The referendum result poses new challenges for the sector.



Irish corporate profits in 2015 had a significant effect on the Eurozone aggregate. Removing this effect, profit growth is on a gradually improving path.


Japan & Developed Asia

Corporate profit trends are highly unstable in Japan. Unsurprisingly, the corporate sector remains reluctant to invest for the long term.


Emerging Markets

Chinese industrial profits have rebounded strongly this year but we believe the factors are short-lived. As input costs increase, profit margins and overall profit growth will decelerate.


Standard Life Investments’ Global Strategy team provide regular analysis of the key economic data that has been influencing financial markets.

Available on a weekly basis, the Weekly Economic Briefing takes a detailed look at the global economic issues that have been impacting our investment strategy. The regional approach aims to provide an easy-to-navigate guide to the most recent developments in the global economy.

The views and conclusions expressed in this communication are for general interest only and should not be taken as investment advice or as an invitation to purchase or sell any specific security.

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