French corporate margins were hit by a roller coaster during the last quarters, reaching a four-year low in Q2 2018 (30.9%) and back to a decade-high in Q1 2019 (32.6%). The 2018 weakness was mainly driven by higher oil prices in sectors unable to adapt their selling prices (mainly agrifood, retail, transportation), and by cash pressures in consumer-related sectors (retail, consumer goods). In Q1 2019, overall margins increased by +1.1pp from Q4 2018, fully driven by lower social contributions. The end of the CICE (a tax credit) is backed by the reduced social contributions and should be neutral overall for corporates’ balance sheets, but other tax cuts (lower corporate tax, lower taxes on production as a result of the law Pacte) should decrease the total tax to profits ratio to 58% in 2019 (62.6% in 2017). Considering margins, the construction sector went in reverse to 35.2% in Q1 (-0.9pp), a situation fully explained by a higher wage bill (+3.4%) but quite risky in a sector where 28% of the corporates have observed an increasing correlation between late and non-payment.
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Weekly Export Risk Outlook 05 June 2019