Growth props European profits

LONDON – European company profits will not grow at the same breakneck pace in 2007 as the past few years but fears of abrupt turn in earnings appear unfounded as a US slowdown is offset by strong economic growth elsewhere.

Headlines pointing to a crisis in the US subprime mortgage market and warnings of a possible recession in the world’s largest economy have contributed to volatility in world equity markets in recent weeks, but have had a limited impact on the earnings outlook for European companies. North America accounts for only around 20 per cent of European company sales, according to UBS estimates, dwarfed by the 65 per cent within the region and nearly matched by the remaining 15 per cent elsewhere in the world.So while the US economy is undoubtedly growing at a slower rate than it has been, the rest of the world has been picking up the slack as Europe’s economic growth continues to surprise on the upside and emerging economies such as China, India and the Middle East boom.And the trend is Europe’s favour.Germany, Europe’s biggest economy and the world’s largest exporter, saw the value of goods sent to China soar 30 per cent last year alone, while exports to Russia jumped a whopping 35 per cent, according to government trade data.”I think most economists would have been surprised that, although the US has tracked a pretty significant slowdown …that slowdown has not been in any way magnified around the world,” said Alister Hibbert, investment director of European equities at Scottish Widows Investment Partnership.”China hasn’t flinched, Asia hasn’t flinched and Europe has accelerated, so the typical thinking that the US is the lead indicator of the slowdown has not actually occurred.”UNPARALLELED GROWTH That means European companies are able to continue enjoying the fruits of “unparalleled global growth” for a extended period, Hibbert said.US gross domestic product growth averaged just 2,1 per cent on an annualised basis in the second-half of 2006, a figure expected to rise only to 2,6 per cent this year, according to the International Monetary Fund.But the IMF has a rosier prediction for global growth in 2007 – 4,9 per cent compared with 5,3 per cent last year, according to its draft outlook obtained by Reuters this month.The IMF’s existing forecast was for growth in emerging market and developing economies at 7,2 per cent for 2007, more than double growth in developed economies.All that growth, plus a continued tight rein on costs, is boosting the profits of European companies.Earnings per share for companies in Europe’s DJ Stoxx 600 Index are currently forecast to grow by around 6,3 per cent in 2007, according to earnings tracking firm FactSet.That’s an earnings growth slowdown from 31 per cent in 2004, 24 per cent in 2005 and almost 15 per cent last year, but it is still growth.Nampa-ReutersNorth America accounts for only around 20 per cent of European company sales, according to UBS estimates, dwarfed by the 65 per cent within the region and nearly matched by the remaining 15 per cent elsewhere in the world.So while the US economy is undoubtedly growing at a slower rate than it has been, the rest of the world has been picking up the slack as Europe’s economic growth continues to surprise on the upside and emerging economies such as China, India and the Middle East boom.And the trend is Europe’s favour.Germany, Europe’s biggest economy and the world’s largest exporter, saw the value of goods sent to China soar 30 per cent last year alone, while exports to Russia jumped a whopping 35 per cent, according to government trade data.”I think most economists would have been surprised that, although the US has tracked a pretty significant slowdown …that slowdown has not been in any way magnified around the world,” said Alister Hibbert, investment director of European equities at Scottish Widows Investment Partnership.”China hasn’t flinched, Asia hasn’t flinched and Europe has accelerated, so the typical thinking that the US is the lead indicator of the slowdown has not actually occurred.” UNPARALLELED GROWTH That means European companies are able to continue enjoying the fruits of “unparalleled global growth” for a extended period, Hibbert said.US gross domestic product growth averaged just 2,1 per cent on an annualised basis in the second-half of 2006, a figure expected to rise only to 2,6 per cent this year, according to the International Monetary Fund.But the IMF has a rosier prediction for global growth in 2007 – 4,9 per cent compared with 5,3 per cent last year, according to its draft outlook obtained by Reuters this month.The IMF’s existing forecast was for growth in emerging market and developing economies at 7,2 per cent for 2007, more than double growth in developed economies.All that growth, plus a continued tight rein on costs, is boosting the profits of European companies.Earnings per share for companies in Europe’s DJ Stoxx 600 Index are currently forecast to grow by around 6,3 per cent in 2007, according to earnings tracking firm FactSet.That’s an earnings growth slowdown from 31 per cent in 2004, 24 per cent in 2005 and almost 15 per cent last year, but it is still growth.Nampa-Reuters