LONDON: It’s not all bad news for European profits. While analysts have trimmed their 2016 earnings estimates for virtually all industry groups on the Stoxx Europe 600 Index in the past three months—with a 2.2 percent contraction for the gauge on average now expected—delving deeper reveals two pockets of optimism. Profit projections for retail and travel-and-leisure companies have survived the cuts, reports Bloomberg.
In what’s turning out to be another year of disappointing growth, Europe’s consumers may provide the one bright spot. Analysts are banking that a fresh drop in energy prices, as well as lower borrowing costs and improved employment, will help lift earnings for firms that rely on domestic shoppers.
“People have more spending power and more money in their pockets,” said Michael Woischneck, who oversees the equivalent of about $190 million at Lampe Asset Management in Dusseldorf, Germany. “Europe is not just recovering—it has growth. It’s not stellar growth, but its stable growth that’s very much domestic-driven this time. European consumption is stabilizing.” Analysts predict average earnings for both industry groups will rise at least 9.3 percent this year. The hope is that a delayed effect from the oil slump and the European Central Bank’s stimulus program will stir home-market demand even as weaker global growth dims sales prospects for export-dependent companies such as Unilever and Pernod Ricard SA.
Data this month showed euro-area retail sales increased more in February than expected, capping 28 consecutive months of gains. And while consumer confidence has waned slightly in 2016, it’s still comfortably above the 30-year average. Bank lending has risen in all months but one since the ECB started buying bonds in March 2015.
The Stoxx 600 fell for a third day, after reaching its highest level since January last week.