2023-06-09 18:06:15
A paradox. As the French economy stagnates, corporate margins increased for the second consecutive time in the first quarter of 2023, according to the data published by INSEE on 31 May. The margin rate – an indicator that shows the profitability of non-financial companies – reached 32.3% of value added between January and March, compared to 31.9% in the third and fourth half of 2022. The same goes for the gross operating surplus – corresponding to the level of wealth generated –, which improved by 3.2 billion euros (+2.8%) over the same period.
At the beginning of the year, profits were boosted by the measures taken by the government, including the reduction of production taxes thanks to the abolition of 50% of the contribution on the added value of companies (CVAE) – voted in the last budget and estimated at 4 billion euros – as well as the aid put in place to mitigate the impact of the rise in gas and electricity prices on companies. There is one indicator that is not green: the decline in productivity. But companies have shifted the brunt of it to employees. This decline over three consecutive semesters has been offset by the compression of real wages in value added, sweeping away the idea of any price-wage spiral (the rise in prices feeds the rise in wages which feeds the rise in prices) agitated by the government, employers and many economists.
“Inflationary environment”
The desire of companies to preserve their margins has fueled the rise in prices, as in the last quarter of 2022. “This marks a break with what we have seen before, assures Denis Ferrand, managing director of Rexecode, an institute close to employers’ organizations. But it should be remembered that the contribution of margins to inflation was slightly negative, around -0.2%, over the year 2022, according to our calculations. The economist points to a “catch-up phenomenon”, following a compression of profitability at the beginning of last year, coupled with aanticipation of rising costs for 2023”. “What I analyze at the level of macroeconomics seems to me to be logical, from what we know about the behavior of prices with a lag between the rise in costs and its impact on the final price”, he assures.
However, this reading grid remains contested. “Normally, demand collapses in times of high inflation. But public policies have softened the blow for consumers, explains Valérie Riches-Flores, independent economist. Some companies took advantage of this inflationary environment to increase their prices in proportions no doubt greater than the increase in their costs, from the moment when demand held up better than expected, except in food.» The expert evokes a phenomenon of “price-profit loop”. The two economists speak of a general trend, and agree that their analysis should be qualified sector by sector or even company by company, the large company with significant market power not being put on the same footing as an SME.
At the end of April, the Governor of the Banque de France, François Villeroy de Galhau, mentioned this margin-price spiral during a press conference: “Overall corporate margins have declined since 2021 [35,8 %, à un niveau jamais atteint depuis 1949, ndlr]. However (…) there are a certain number of points of attention that we point out, firstly more on the side of large companies than SMEs, and more in certain sectors, energy, transport, and certain service sectors or certain industrial sectors.”
The food industry monitored by Bercy
The figures presented by INSEE show, in fact, great sectoral disparities. While the hotel and catering sector has a small margin rate of 14.4%, the total average is pulled up by energy companies (70.9%, at a historic level since the end of 2022), transport (37.8%) and the food industry (48%). It is on the latter that Bercy has decided to focus all its attention while inflation is now driven by food products.
The Minister of the Economy, Bruno Le Maire, reaffirmed, this Friday, June 9 on BFM TV, his intention to use the «name and shame», as well as a potential tax on the largest manufacturers, if they did not pass on the fall in the prices of certain inputs from July. “There has been a significant catch-up effect in the industry, which for several quarters had squeezed its margins in the face of rising input costs, recalls Julien Pouget, chief economist at Insee. We have to see if it is limited to this effect or if it is the start of a new, more inflationary process. This remains a point of vigilance.”
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