Every now and then a chart crosses my screen that I just have to stop and study. “Why is it doing that?,” I ask no one in particular.
The most recent chart to give me this kind of pause suggests to me that Europe’s role in the global economy is fading.
It makes sense, of course. Unemployment rates in Spain and Greece are expected to remain in the 20% range for at least another couple years. The unemployment rate for Europeans 29 and younger is 19%. For Spain and Greece those rates are 42% and 49%, respectively.
Source: Business Insider
The chart above shows the percentage of global corporate profits earned in Europe. As you can see in the chart, that percentage fell sharply after the financial crisis, dropping from the low-40s to the mid-20s. Today, Europe accounts for roughly 23% of global profits compared to around 43% just five years ago.
Even as Germany’s unemployment rate falls and its economy booms, Europe seems to be fading in economic relevance.
The share of profits earned in Europe has now dropped to its lowest point in more than 20 years. Considering the huge economic challenges facing Europe, this trend shows no signs of reversing anytime soon.
As Asia, Africa and South America become more important to the global economy, Europe’s stagnant economies are reducing the continent’s role in the global economy.
What can you as an investor do with this information?
For starters, if you own a company that is largely dependent on profits earned in Europe, certainly this chart suggests a difficult economic environment for the company in which you have invested. Inversely, if you own a company that benefits from the growing importance of developing economies such as China, India and Brazil, you might consider this chart to be validation of your investment thesis.
Regardless, this Business Insider chart does not bode well for Europe’s “lost generation” of unemployed and underemployed youth. And if something doesn’t change, these trends will continue to eat away at Europe’s role in the global economy.
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