Data published by Eurostat shows that profitability of non-financial corporations in the Euro-zone fell in the 2nd quarter to 38.8% – this is the lowest rate since Q2-2020. On the same basis, the investment rate declined to 21.3%; for this series, this is the lowest figure since Q3-2015.
The gross investment rate of non-financial corporations is defined as gross fixed capital formation divided by gross value added – this ratio relates investment in fixed assets (buildings, machinery etc.) to the value added created during the production process. The fall in the investment rate was because business gross fixed capital formation fell (-3.7%) while gross value-added grew (+0.7%).
The investment ratio can be affected by large imports (or exports) of intellectual property products reflecting globalisation effects; this particularly affects Ireland where the presence of large multi-national headquarters operations makes their data very volatile and there is some initial evidence that this may be behind at least some of the fall in gross fixed capital formation in the latest period.
The profit share of non-financial corporations is defined as gross operating surplus divided by gross value added. This shows the share of the value added created during the production process remunerating capital and it is the complement of the share of wage costs (plus other taxes minus other subsidies on production) in value added. The reduction in profitability 2nd quarter of 2024 is explained by the business compensation of employees (wages and social contributions) plus taxes less subsidies on production growing by +1.2% which is a faster rate than the rise in gross value added (+0.7%).
You can get the full details from the Eurostat News Release which can be downloaded from their website at https://ec.europa.eu/eurostat/news/euro-indicators (04 October – listed as “household saving rate” which is part of the same document) or requested from MTA.