2021-09-02-牛津经济研究院-Eurozone_Firms_margins_won_t_furnish_long-lasting_lift_to_inflation_5页_576kb

Eurozone firms' operating margins have recovered to their highest since Q2 2008, influenced by both strong demand for several months and fiscal support. However, excluding direct transfers received by firms, profitability remains below its average in 2019. This suggests that the subsequent withdrawal of fiscal support will likely prevent a sustained increase in margins, potentially dampening long-term inflation.

Key Factors:

1. Labour Costs: Though under control, wage bills were reduced by furlough schemes during the pandemic. While wage growth is expected to increase, remaining slack in the labour market and lower productivity gains are expected to keep wage growth subdued. Productivity increases from higher capacity utilization will help decelerate labour costs rather than 'true' productivity gains through innovation.

2. Input Costs (excluding labour): Commodity pricing and global supply shortages have increased input costs, but these are expected to soften once supply bottlenecks ease. Corporate interest costs remain low due to ECB's dovish policy, government guarantees, and effective low rates. Overall corporate balance sheets are healthier than after the GFC, reducing the likelihood of firms hiking prices just to cover debt.

3. Pricing Power & Demand: Pent-up demand may lift some sectors' prices, but we expect aggregate pricing power to be weak, with eurozone output remaining significantly below potential until the mid-2020s, which contradicts US inflation trends.

4. Sectoral Differences: Cross-sectoral divergences exist; some services and goods sectors might see short-term price pressures but overall recovered pricing power will take years. The impact of fiscal support varies by country, with tourism-dependent countries likely facing weaker profitability.

Conclusion:
While underlying profitability may improve in the coming quarters, demand is not seen as being strong enough to sustainably push margins back to pre-pandemic levels, thereby limiting the duration of any potential inflation boost.