European companies are set to begin their first-quarter earnings season under growing economic pressure, as the Middle East conflict reshapes growth expectations, raises inflation, and impacts corporate performance. Analysts expect companies in the STOXX 600 index to report an average earnings growth of around 4% for the first quarter. However, this overall figure is largely supported by strong gains in the energy sector.
Energy companies are projected to see earnings rise by nearly 25%, driven by a sharp increase in oil prices following disruptions in the Strait of Hormuz. Excluding energy, most sectors are expected to show minimal growth of around 1.5%.
Economic Outlook Weakens
The conflict has weakened the eurozone’s economic outlook, with growth forecasts being revised downward and inflation rising due to higher energy prices.
Eurozone inflation increased to 2.5% in March, and economists expect further increases in the coming months. At the same time, economic growth projections for 2026 have been reduced, reflecting the broader impact of the crisis.
Central bank policymakers are now expected to consider interest rate hikes to control inflation, which could further affect business conditions.
Sector Impact Varies
The earnings season will highlight differences across sectors.
Luxury brands are expected to face pressure as demand weakens, particularly from the Middle East, which had previously been a key growth region.
Automotive companies are also under strain, with declining earnings expectations and ongoing challenges such as tariffs, currency fluctuations, and the shift to electric vehicles.
In contrast, semiconductor companies are expected to remain relatively stable, supported by strong demand for advanced technology and artificial intelligence.
Energy Sector Drives Gains
Energy companies are expected to benefit the most from rising oil prices, with strong earnings anticipated in the upcoming reports.
Analysts will closely watch whether these gains continue and how companies manage operations amid ongoing regional disruptions.
Banking Sector Faces Mixed Outlook
European banks may see some benefits from higher interest rates, which can improve profit margins. However, there are concerns that slower economic growth could lead to increased loan defaults and financial pressure on borrowers.
Experts warn that the current situation could lead to a more challenging environment for banks compared to earlier expectations.
Uncertain Outlook Ahead
The upcoming earnings season is expected to provide a clearer picture of how companies are responding to the crisis.
While overall earnings growth remains positive, analysts say much of the improvement is concentrated in the energy sector, masking weaker performance across other industries.
The broader question remains whether the impact of the conflict will be temporary or lead to longer-term economic changes.
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