Research Briefing | Sep 3, 2021

Eurozone | Firms’ margins won’t furnish long-lasting lift to inflation

Ipad Frame-Eurozone-Firms-margins-wont-furnish-long-lasting-lift-to-inflation

Profitability has staged an impressive recovery, but the rise in Q1 operating margins to a 12-year high materially overstates corporate health. Excluding direct transfers to firms, operating margins remain below their weak 2019 average.
What you will learn:

  • Gradual withdrawal of fiscal support is bound to offset part of the profitability boost from the expected added recovery in demand near term.
  • Labour costs should remain well under control, though. Widely used furlough schemes have cut firms’ wage bills. But underlying pay growth also slowed to new lows during the pandemic.
  • Soaring commodity prices and global supply shortages have boosted non-wage costs, especially for durable-goods producers. But we continue to think that once bottlenecks ease, input prices will soften quickly.
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