In his recent remarks at the ECB Forum Alfred Kammer from the IMF admitted that “forecasting is a humbling process” and that more granular bottom-up data may be needed. Our Crux of Capital-ism database can contribute here. In the Swiss context, we show that our firm-level metrics on economic profits and corporate distress may be valuable leading indicators for macroeconomic variables, which can improve key economic forecasts. The mean absolute predication error (out-of-sample) in our preferred forecast model for real Swiss GDP growth, for example, drops by 45%.

After nearly two decades, claims that Germany is the “sick man of Europe” are making a comeback. Germany is the only major advanced economy expected to see its GDP shrink, the IMF contend. Our firm-based performance data reveals a 50% drop in economic profit for Germany’s publicly-listed firms in the first-half of 2023. The resulting crimp on investments by corporate giants like BASF and Siemens ought to be a major economic policy concern. While other EU countries are also experiencing economic profit declines in 2023, falls in Germany are more pronounced — heightening the imperative of reform.

Measuring economic profits rather than accounting profits is a far more reliable indicator of a company’s performance, argue Simon Evenett and Felix Reitz. And value-creating firms are well-equipped to help fund sustainability as well as making healthy returns for shareholders.

We examine whether China’s tremendous economic growth this century has a counterpart in significant economic profitmaking by its firms. We find that Chinese companies only started to generate significant economic profits after 2019. The largest firms in the consumer discretionary, IT, and industrial sectors have driven this recent upturn. Yet, these developments appear vulnerable. Furthermore, even with the recent increases, Chinese firms only create 34% of the economic profits of their US counterparts.

As interest rates rose in many economies, fears of a “hard landing” grew. But has tighter monetary policy translated into more firms going into corporate distress? The Crux of Capitalism project tracks three indicators of corporate performance and is well placed to assess how many firms are close to the edge. In 2021 and 2022 already 25% of firms struggled to make their interest payments, 8% showed elevated risk of bankruptcy, and 28% were destroying economic value. Australian and Canadian firms appear to be especially vulnerable, while fewer Japanese and Swiss counterparts are in danger.

A firm is in distress if its current operations cannot generate the means to meet its interest payments and/or bankruptcy risk is too high. The Crux of Capitalism project generates interest coverage ratios and Altman’s Z’’-scores that, when combined, indicate whether a firm is likely to be in corporate dis-tress. Sorting between viable zombie companies and more destined for failure is possible. This approach could support the development of accurate early warning indicators and, during an era of interest rate normalisation, reduce false alarms about unviable zombie firms.

The economic profit measure developed in the Crux of Capitalism initiative is based solely on reported firm performance. As such it departs from established metrics of the national business environment, parts of which are based on perceptions of national policies and institutional effectiveness. Here we compare across countries and over time to assess where our outcome measure confirms or departures from high-profile, established metrics of the national business environment.

Fair cross-country comparisons of the value created by capitalist economies require accounting for differences in the propensity of firms to list on stockmarkets. We compute the shares of companies listed by country, year, and asset size category and find significant cross-country variation. Adjusting for these differences changes rankings of nations based on total economic profit generated in plausible ways. Adding the contribution of non-listed firms raised the total economic profit generated in the 21 economies studied in the Crux of Capitalism project by 35% on average for the 2014-2022 period. This correction does not alter the US primacy in global economic value creation.

Our societies confront a number of critical challenges such as the transitions to a low-carbon economy and to a digital and aging society. Many expect a lot from business, begging the question of how much economic profits are available for any use, including investing in the future of the business. We find that in 2022 publicly-listed firms in 21 capitalist economies generated significant surpluses. Based on our economic profit measures, these companies have at most 2.8 trillion USD to deploy, with notable concentrations in the IT, health care, consumer discretionary, and industrial sectors.

The Crux of Capitalism project calls into question the efficacy of accounting profit measures when assessing a firm’s ability to create value through its current operations. An economic profits measure is advanced instead and is executed at the firm level and then aggregated across firms into sectoral and national totals. Three examples where accounting profits measures obscure the underlying health of firms and capitalist economies are provided here.

The track record of Swiss publicly-listed companies in creating economic value is assessed, along with their propensity to experience corporate distress. This assessment is conducted both in absolute terms and relative to foreign peers for the years 2005 to 2022. Established measures of corporate distress were augmented by a specially-constructed economic profits measure assembled from quarterly financial reports. While on average Swiss firms perform better in economic profit terms than rivals from neighbouring countries, there are doubts as to whether Swiss firms can generate higher levels of economic profit in the future, especially as the cost of capital is rising.