Goldman Sachs strategists said that given the headwinds from oil prices and inflation, European companies' profits from the STOXX 600 index are likely to grow by 3% this year, which is much lower than the previous forecast (+7%).
Strategists also lowered their forecast for oil prices for this year: the average price of Brent oil will be $81 per barrel, which is $17 per barrel lower than the previous forecast. Goldman Sachs said lower oil prices would put pressure on revenue and profitability of European commodity-related stocks. Lower oil prices are estimated to reduce annual revenue growth by 5%, with net profit margins expected to decline by 10%.
Meanwhile, the strategists added that a decrease in consumer inflation in ideal economic conditions could boost the stock's growth. "If price inflation falls below wage inflation, this adds downward pressure to net income margins," Goldman Sachs said.
According to ECB forecasts, consumer inflation will fluctuate in the range of 2.5-3% for most of this year. Policymakers said any talk of a rate cut before the release of important first-quarter wage data (in May) would be premature.