Global Companies Lose $320 Billion Due To Geopolitical Disruptions

Global companies have incurred a significant financial toll of $320 billion in lost profits since 2017, primarily due to geopolitical and economic disruptions rather than poor management. This substantial loss underscores the challenges of operating in an environment marked by economic shocks and political instability.

Research conducted by EY-Parthenon reveals that nearly 3,500 publicly listed companies with annual revenues exceeding $1 billion have experienced earnings losses during periods of intense volatility. These disruptions, ranging from inflation surges to wars and market collapses, have impacted every sector of the global economy.

Mats Persson, the UK lead for macro and geostrategy at EY-Parthenon, noted that the era of easy money and stable geopolitics is over. He stated, “After years of cheap money and relative geopolitical stability, a wave of macro shifts, from trade tensions to global conflicts, now means that government policy and global events are having a greater impact on value and profits than in many decades.”

Companies in China were particularly hard hit, with about 25% of the companies in the study losing 5% or more of their profit margins over the past three years. The damage was assessed using EBITDA, or earnings before interest, taxes, depreciation, and amortization. This decline was driven by a series of global events, including surging inflation, Russia’s war in Ukraine, the collapse of the UK’s gilt market, the Israel-Hamas conflict, and the return of Donald Trump to the White House in 2024.

During this period, 40% of the changes in the FTSE 100 market value occurred on the exact days when major geopolitical or economic events were unfolding. Out of the 833 companies in China that met the revenue threshold, 40% experienced significant profit damage, totaling $73 billion. The real estate, steel, and construction sectors were particularly affected, facing both internal and global pressures.

In contrast, the UK saw less damage, with only 100 companies qualifying for the analysis and 14 of them experiencing losses. The total EBITDA drop for these companies amounted to $2.5 billion over three years. While the impact was not as severe as in China, it still highlighted the challenges faced by even relatively smaller markets in maintaining profitability during chaotic periods.

Despite the widespread disruptions, some companies managed to grow and maintain their profitability. However, only one in ten global companies that had top-quartile EBITDA margins in 2014 were able to sustain those margins by 2024. This indicates that survival in such an environment requires a complete overhaul of business strategies.

In the UK, companies like the fashion chain Next, the chemical manufacturer Croda, the mining company Rio Tinto, and the engineering company Spirax stood out for their ability to continue moving forward. In America, Caterpillar, UPS, Pfizer, Merck, and Johnson & Johnson managed to boost their earnings above their respective sector averages.

According to Persson, these successful businesses had diversified their portfolios, managed their cost bases effectively, understood and adapted to various policy changes, and updated their governance structures to reflect the new global landscape. This strategic approach allowed them to navigate the challenges posed by geopolitical and economic disruptions more effectively than their peers.