The cost explosion due to more expensive energy and wage increases is certainly cutting into the profit margin of Belgian companies. The profit of the median company fell from 16.8 to 14.3 percent. ‘The 1 percent largest companies distort the picture of the profit trend upwards.’
It is a major discussion between social partners. Employers’ organizations are sounding the alarm because the profits of the companies are declining. This is due to rising costs such as energy and wages. The latter rose by 11 percent in one year due to automatic indexation. They therefore demand measures that mitigate the effects of this. Trade unions, on the other hand, believe that profit margins are more than high enough that companies should be able to continue to pay the automatic wage indexation smoothly. Their main argument is the National Bank of Belgium’s figure on the evolution of profit margins in recent years. The gross profit margin has risen in recent years from 40 percent in 2015 to 45 percent at the beginning of last year.
The National Bank comes with a new study that paints a different picture of the situation at companies. It turns out that things are not going well at all. As ‘micro-economists’, Gert Bijnens and Cedric Duprez took a different approach to the classical ‘macro’ figure on profit margins published by the National Bank. They look at the entire population of companies and map their figures one by one. In the jargon this is called a bottom-up approach, as opposed to the top-down approach of macro-economists. Their aim is mainly to visualize the situation of the median (halfway through the population) company, and not the average company, because such an interpretation is distorted by giants such as AB Inbev or Solvay. ‘The average profit margins of the companies are pulled up by the 1 percent largest companies. In recent years, they have seen their profit margins rise, while for the 99 percent of other companies it has stabilized,’ says researcher Duprez.
Decrease in feeding
Bijnens and Duprez then mainly looked at the profit margin per quarter. Their latest figures refer to the third quarter of 2022. The margin is also defined differently from the macro figure, which takes gross profit against value added. They take profit against sales. This shows that the profit margin has fallen to 14.3 percent. Last year it was still 16.8 percent. The average in the period 2015-19 was 15.4 percent. The researchers were also able to break down these figures by sector. The drop in profit margin is widespread across sectors. We see a particularly strong decline in the food industry, which was most affected by cost increases. The supermarkets are also suffering. The exception is the travel agencies and hotels, which made more profit again in 2022 after the corona years.
The National Bank expects the profit margin to fall even further in the next two years, which will give employers’ organizations extra ammunition to press unions and the government for additional measures to safeguard competitiveness.
