Company margins eroded by inflation

In 2022, the corporate margin rate, which relates gross operating profit to the company's value added, fell back to 31.4%, close to the figures recorded in 2018. This gap could widen next year due to the energy crisis. Explanations.

Margins deteriorated by around 4 points

Data published by Insee and the Banque de France show that the margin rate of non-financial companies fell in 2022, from 34.2% to 31.4%, a level close to that of the years preceding the health crisis. According to economist Daniel Cohen, who recently published a column on this subject in the " Obs ", this figure is not alarming, as 2021 was an exceptional year, with corporate profitability boosted by the government's aid package.

Non-financial corporate profit margins and their determinants


The gap with 2021 is also explained by the war in Ukraine, which has led to difficulties in international value chains and upward pressure on non-food raw material prices. Businesses are particularly hard hit by rising electricity and gas bills, which are weighing on their production costs and margins.

According to Banque de France business surveys, nearly 20% of companies, particularly in industry, believe that the energy situation will have a major impact on their margins over the next three months.

The overall trend in profit margins in 2022 conceals major disparities between business sectors. In the 1st quarter, for example, the energy sector saw its margin rate increase, while the manufacturing sector did not. From now on, the trend is towards a sectoral rebalancing following the measures implemented at national and European level.

Margin to fall sharply in 2023

The situation is likely to become more complicated for companies in 2023, as fixed-rate contracts gradually expire and unit labor costs continue to rise. The Banque de France expects margins to fall by 0.9 points in 2023 and 2024.

Other factors will have an impact on this ratio. These include the lack of dynamism in economic activity.

" Lower addressed demand, stronger currency appreciation and a more pronounced rise in interest rates, combined with upward revisions to our inflation forecasts, lead us to expect a slightly sharper slowdown in 2023," says the institution, which projects annual growth at 0.3%.

As for interest rates, they should continue to rise in the wake of interest rates and inflation.