Some good news amid all the gloom

Allister Heath
THERE is one major difference between 2008 and today. The corporate news three years ago was utterly dire; today, it is mixed, not uniformly dismal. Plenty of firms are still doing extremely well; some are finding life tough but are still profitable; and some are doing badly or going bust. But the corporate news – at least for large, listed companies, and definitely for multinationals – remains better than the purely economic news.

This wasn’t the case a few years ago: I remember days when every single corporate story in our newspaper was negative, with every single company reporting suffering hits to profitability or downgrading its expectations. This is certainly not the case today – and for good reason. While what is happening in the Eurozone is extremely scary (regardless of yesterday’s ratification of the bailout fund expansion) and could end in another massive recession, economies are not currently collapsing. The UK is stagnating; the US is expanding slowly and only some Eurozone economies are contracting. It’s pathetic and painful, but the world as a whole is still growing relatively strongly, thanks to emerging markets in Asia, Latin America and Africa, and despite an increasingly worrying slowdown in China. It is good to remember this among all the (perfectly appropriate) doom and gloom.

Take some of the stories from today’s paper. Google’s profits and revenue growth last night were astonishingly good. Its third-quarter net revenue jumped 37 per cent year-on-year to $7.51bn while its net income grew 26 per cent to $2.73bn. Google remains an astonishing success story in a high growth industry. In a completely different field, commodities giant Rio Tinto unveiled a strong update, with record sales of iron ore. The opposite trend was illustrated by JP Morgan, which unveiled a sharp drop in investment bank revenues.

A similarly diverse picture emerges from smaller, more UK-centric firms: today’s paper contains a series of positive stories from UK retailers, which is quite remarkable given the massive pressures on that sector. Booker, the wholesaler; Liberty, the department store; and especially Poundland, the discounter, all announced strong results (the latter’s earnings are up 34 per cent and turnover 25.8 per cent thanks to a flurry of store openings). Of course, it’s not all good: WH Smith’s profits are up thanks to cost cutting but its like for like sales tumbled. Fund managers are suffering from reduced assets under management as a result of the volatility, and small City firms are all under immense pressure as a result of lower advisory work.

But the point is that the picture is mixed, not disastrously negative. Over the past three years or so, we have seen the corporate sector face collapse, rebound massively (with profits in many cases hitting record shares of GDP) and now negotiate the slowdown. At a time of wealth destruction there are still plenty of wealth-generating opportunities for those with the courage or ability to spot them. Yet it is also worth remembering that zero growth entails a zero sum game for the economy, with winners taking a larger slice of the pie and losers a smaller chunk; ordinarily, when the economy grows, the rising tide can lift all boats. These are undoubtedly tough times; and the economy is facing severe risks, courtesy of the Eurozone. But all is not yet lost.
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