The generalized slowdown causes business profits to fall by 11Q3T

During the first nine months of the year there has been a drop in business profits, which has not been seen since 2012. According to the Bank of Spain, there has been a general slowdown in activity in all sectors and types of companies, in addition to a moderation when it comes to salaries and this has caused financial vulnerabilities to emerge among companies, which had not been appreciated since the economic recovery began.

The Quarterly Balance Sheet Central of the Bank of Spain collects the Net Ordinary Result of the companies and it has been determined that there has been a decrease in 1%, if we compare it with the same period of the previous year, which represents a step back in the last nine years and, more, if we take into account that during the previous six years this figure had increased by 13% per year on average.

If, instead of viewing the accumulated data, the evolution by quarter is analyzed, the decline is still observed in a more obvious way, because in January and March there were still profits, of 9.4% annually, but in the second quarter there were a decrease of 3.3%, although the accumulated figure until June was still positive. In the third quarter, however, this figure began to decline sharply, reaching a 5.4% decrease.

What are the causes?

There are different reasons why this decline has occurred, since it has been influenced by the general slowdown in activity, which has caused the value of production to slow down to 0.3%, which in previous years had grown to 6%. The decrease in sales and personnel expenses continue to rise by 2.9%, which has led to a decrease in the Gross Operating Result to 1.6%.

During the years 2017 and 2018, there was a great relief in financial costs (an average saving of 7%) both due to the types of debt, as well as the reduction and deleveraging of companies. Currently this decrease is much smaller, from 3%, which causes the Ordinary Net Income to lose strength and fall by 1%.

The total deterioration, for its part, once the atypical income and expenses are applied, is much deeper, at 44.5%, although these are figures affected by great variability, since the previous year's result was more inflated by The unusual income of that year and the valuations of the assets in the companies have suffered a large cut that reaches 64.5%. And given these poor results, companies are increasingly reluctant to hire, raise salaries, etc.