LIVE MARKETS-European earnings growth wiped out in ECB adverse scenario

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EUROPEAN EARNINGS GROWTH WIPED OUT IN ECB ADVERSE SCENARIO

Last week, the ECB released some expectations for inflation and growth in different scenarios related to the Middle East war.

In the "severe" scenario, oil would rise to almost $150 per barrel and gas prices to 110 euros per megawatt-hour in the second quarter of this year.

They believe that will push headline inflation to 4.4% this year, 4.8% next year and 2.8% in 2028, well above their 2% target.

Citi has used these ECB scenarios to model the implications for European earnings, and found that they would take a big hit.

Prior to the conflict, earnings were expected to grow 8% in Citi's baseline forecast. For now they see earnings growing 6% but there are risks.

"In a more severe scenario, 2026e EPS growth would be eliminated," writes Citi equity strategist Beata Manthey.

"This all implies downside risks to analyst forecasts of +11%."

Chart reprinted with permission of Citi Research. Not to be reproduced.

(Samuel Indyk)

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