Investors should brace themselves for more profit warnings in 2017.

This isn't simply because economic growth will slow this year: economists expect an expansion of only 1.2 per cent this year after 2 per cent growth last. Nor is it just because there's danger of a squeeze upon the profit margins of firms that don't export much. It's also because economic slowdowns affect the distribution of growth rates across companies. As the macroeconomy weakens, corporate growth becomes more negatively skewed, so that a disproportionate number of firms do badly. This was first pointed out by Paul Geroski and Paul Gregg in a study of the 1990-91 recession in the UK. They showed that just 10 per cent of firms accounted for 84 per cent of the drop in profits then. However, a recent paper by Nick Bloom of Stanford University and Fatih Guvenen and Sergio Salgado at the University of Minnesota shows that much the same is true around the world. They studied corporate sales growth in 44 countries between 1986 and 2013 and found that "periods of low economic activity are characterised by an increase in the probability of very large negative shocks at the firm level".

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