After record inflation in the first quarter, European companies and investors are concerned about the outlook for the rest of the year.
As the months go by, concerns persist about an economic slowdown in the euro zone due to the war in Ukraine. The International Monetary Fund estimated on Tuesday 19 April the cost of this at more than one point of GDP this year kliknij po więcej informacji. The IMF now expects 2.8% growth in the eurozone countries, a big slowdown after the 3.9% anticipated in the previous forecast in January.
“The war in Ukraine is severely affecting the eurozone economy,” explained Christine Lagarde, President of the European Central Bank, on Thursday 14 April. The ECB also revised its optimism downwards last month, expecting only 3.7% growth this year and a sharp rise in inflation.
First quarter on the rise
As companies release their first-quarter results, Kasper Elmgreen, head of equities at Amundi, expects first-quarter results to be “decent” but focuses on price pressures and uncertainty from the war in Europe.
“It’s super, super, super important for us to understand what companies’ abilities are to pass on cost increases to consumers,” he comments. “What are they going to say on price? What are they going to say on volume? What about mix margins? And can they say anything about the demand outlook?” he added.
Companies in the benchmark STOXX 600 regional equity index are expected to report a 24.7% increase in first-quarter earnings, according to the latest Refinitiv data, compared with a 14.6% growth rate expected at the start of 2022.
But much of that increase is due to the energy sector, which has a 5.9% weighting in the index and is expected to grow earnings by just 6.8%.
Concerns
Morgan Stanley expects earnings to beat estimates this quarter, but says that given the stagflationary environment and margin pressures, a new round of earnings declines could occur. “Corporate guidance will likely be more important than ever this quarter and should set the tone for price action,” the U.S. investment bank said in a note, pointing to the potential for earnings gains in sectors such as energy, pharmaceuticals and even utilities.
Luxury goods are also considered resistant to inflationary pressures because of their pricing power. Last week, LVMH said it would continue to raise prices despite geopolitical tensions and blockades in China.
Data from Refinitiv shows that analysts now expect 2022 earnings in Europe to rise more than 11%, up from 7% in January. This is despite the fact that earnings revisions, the number of upward revisions minus downward revisions, have turned negative for the first time since late 2020, a sign of slowing momentum.
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