However, the Bank of Spain warns that margins have not returned to pre-pandemic levels as they have not been able to pass all of the cost increases into selling prices
Spanish companies are improving their profits, billing and equity. However, this improvement is not enough to recover all that was lost due to the harsh impact of the pandemic. That is one of the main conclusions of the central balance sheet published by the Bank of Spain on Thursday. A document that was awaited with particular interest this year, amid doubts whether companies will pass on the improvement in results to their employees’ wages.
Taking into account that the institution takes a minimal sample for the 2022 data (of only 950 companies), the figures show that the answer to that question is negative. Between January and September, the companies analyzed achieved a net current result that was 94% higher than in the first nine months of 2021. And during the same period, wage growth was only 3.2%, according to data from the regulator.
If you add the 3.6% increase registered by the growth of the effective average employment to this increase, it turns out that personnel costs for companies increased by 6.9% during that period.
“It’s easy to get carried away and think that operating profit is growing disproportionately, but we need to be clear that we’re talking about ratios and sales margins haven’t fully recovered, partly because companies haven’t been able to carry over all the increases in production costs -especially those linked to energy inputs- at the final sale price,” emphasizes Ángel Gavilán, General Manager of Economics and Statistics of the Bank of Spain.
In other words, margins are improving, but have not yet recovered to pre-pandemic levels. “That is why we are concerned about the second-round effects, as there could be a will in the future to pass costs on to the final sale price and generate additional inflationary pressures in 2023 and 2024 from both employers and employees, and that worries us,” they say from the Bank of Spain.
Margin declines were proportionally stronger in energy and industrial (excluding refining) companies, and more subdued in information and communications. By contrast, margins on sales continued to increase in the retail and on-trade sectors, in a context of strong recovery in demand following the lifting of restrictions.
Against this background, the institution insists that the income agreement would already be implicitly fulfilled, “to the extent that both workers and employers lose purchasing power in real terms”.
The information gathered by the quarterly sample of the Bank of Spain’s Central Balance Sheet shows that the company’s revenue grew at a nominal rate of 48.7% in the first three quarters of 2022 compared to the same period of the previous year. A much more powerful increase than the 16.2% of 2021. “The growth observed in the first three quarters of this year, which is the highest in the quarterly series, has been strongly driven by the increase in sales prices,” the institution indicates .
Turnover is divided between intermediate consumption and gross value added (personnel costs and gross economic result). The dynamism of sales is also reflected in the evolution of intermediate consumption, a very important component given the impact this year has had on imports of energy products. In concrete terms, they rose even faster (54.3%) during the same period, in a context of sharp increases in the cost of energy and other raw materials.
As a result, gross value added (VAB) increased by 21.1% until September 2022, a figure that is also much higher than the 12% growth last year. It is also the highest increase for this surplus in the entire quarterly series.
Analyzing the data by sector, the strongest increases occurred in the industrial sector (32.6%), although this figure is strongly marked by the rise in the refining sector, which is closely related to the sharp increase in the prices of crude oil. This sector is followed by trade and catering (25.1%).
Despite the remarkable increase in gross value added during the first nine months of 2022, the Bank of Spain warns that the data solely related to the third quarter shows a loss of momentum compared to the previous quarter, “which is consistent with the sharp slowdown in economic activity included in the preliminary estimate of GDP for the same period”.
This pattern occurred in most industries, but was particularly noticeable in manufacturing and to a lesser extent in trade and hospitality.
The positive evolution of gross value added contrasts with the decline in the average liquidity ratio of companies, which fell until September in almost all sectors analysed, with the exception of energy, which showed no significant variations.
In most cases, this ratio is at levels close to those seen pre-pandemic, reversing the 2020 uptick when companies built up liquid assets to protect themselves against heightened liquidity risks. Finally, corporate gross debt in September 2022 was 15% above the level at the end of last year.
Source: La Verdad
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
