- According to Richard Martin, managing director of IMA Asia, rising energy prices will increase corporate costs and compress profit margins around the world.
- According to Martin, the company’s earnings will be squeezed in the fourth and first quarters of 2021 and 2022.
- Due to a “very robust” consumer market, U.S. companies have a better chance of retaining their margins, whereas those in China and India may face more risks, he noted.
How will the rising energy process affect businesses across the globe?
According to a management consultant, rising energy prices will increase corporate expenditures and decrease profit margins for enterprises around the world.
Oil, natural gas, and coal prices have risen sharply in recent weeks as supply remains tight and demand recovers after a COVID-19-induced slowdown. From Europe to Asia, this has contributed to power and gasoline shortages.
“It’s a major issue for businesses.” “As their input costs rise, the challenge is how rapidly they can raise their selling prices,” Richard Martin, managing director of IMA Asia, told CNBC‘s “Squawk Box Asia.”
According to Martin, who advised the Asia Pacific operations in charged top executives at big global corporations, the tension on company profitability will probably occur in the fourth quarter of 2021 and the first quarter of 2022. Higher energy prices have combined with supply chain delays and a shipping container scarcity, resulting in a significant increase in inflation.
Larger Economies India, China could be at risk
According to Martin, companies in the United States have a greater chance of protecting their profit margins due to a “very buoyant” consumer market, which will allow them to quickly raise selling prices. Those in other countries, on the other hand, have bleaker prospects, according to the consultant.
“We don’t have such a thriving consumer market in many nations throughout the world.” China is one among them, as is a large part of East Asia. “And when costs rise, profit margins fall,” Martin explained.
India is also in danger. The Indian stock market has been on a rampage, but the South Asian country may struggle to pass expenses on to consumers, according to Martin. Natural gas prices have soared to new highs in the United Kingdom, Europe, and Asia as a result of a global energy shortage. On the other hand, experts think that the escalated prices witnessed by Europe are unlikely to be the same in the United States.
Much will eventually be determined by the winter weather. However, because it is the world’s greatest natural gas producer and its inventory levels are not as low as they are in Europe, the United States is in a stronger position heading into the colder months.