Global corporate profits are set to fall for the first time in 18 months after a record second quarter, as a rise in the Delta variant has increased labour costs while squeezing supply chains, according to calculations by Reuters.
Although huge stimulus packages helped to underpin economic recoveries while the easing of pandemic restrictions resulted in a boom in consumer demand, many businesses continued to struggle with supply chain issues. By increasing prices though, companies were able to partly offset their own increased costs.
Analysis of Refinitiv data by Reuters showed that the combined net profits of over 2,542 global companies – with a market capitalisation value of over $1bn – soared to a record $734bn in the quarter ended June.
In the next quarter though, profits are now predicted to fall by eight per cent to an average of $678bn.
The data showed that US company profits, which rose 12.4 per cent in the second quarter, are also predicted to fall by 7.2 per cent in the next.
European firm earnings will decline by 10.3 per cent and Asian companies by 9.6 per cent.
Fresh outbreaks of Covid-19 strains, as well as floods, have seen China’s retail sales growth drop in July while in the US business activity also slowed down for the third consecutive month in August.
The ongoing global shortage of semi-conductor chips has further strained supply chains around the world.
“Avoiding lost sales due to supply chain issues is a more acute problem today than it has been historically,” senior Wells Fargo Asset Management investment strategist Brian Jacobson told Reuters.
“Shipping costs are high. Fading support from stimulus checks may change the composition of consumer spending.”
Real estate was highlighted by Reuters as the sector which is expected to see the biggest decline, at 22.2 per cent while financial will fall by 18.8 per cent and the consumer discretionary sector by 16.2 per cent.