Goldman Sachs cuts Europe Inc’s 2024 profit growth forecast to 3 per cent

Goldman Sachs lowered its 2024 earnings growth forecast for European STOXX 600 (.STOXX) companies to 3 per cent from 7 per cent, citing headwinds from lower oil prices and inflation.

Oil prices gained last year amid geopolitical tensions. However, the Wall-Street brokerage anticipates a fall in crude prices this year.

Goldman Sachs expects Brent crude prices to average $81 a barrel in 2024, down from to its previous estimate of $98.

Weaker oil prices would affect the revenue and profit margins of commodity-linked European stocks, Goldman Sachs said in a note dated Friday.

Disinflation would pose a challenge to equities, it added. However, lower consumer prices, in ideal economic conditions, could stimulate equities.

“If price inflation falls below wage inflation, this adds downward pressure to net income margins,” Goldman Sachs strategists said.

The brokerage estimated that lower oil prices would lead to a 5 percentage-point reduction in annual revenue growth, with net income margins expected to decline by 10 basis points.

The European Central Bank (ECB) expects inflation to fluctuate in the 2.5-3 per cent range for much of this year. Policymakers have said any talk of a rate cut before crucial first-quarter wage data, due in May, would be premature.

A slew of surveys showed on Friday that eurozone inflation could fall more rapidly than anticipated this year due to sluggish economic growth, bolstering bets for an early start to ECB interest rate cuts.

The benchmark index (.STOXX) gained more than 12 per cent last year, while the oil and gas sub index (.SXEP) posted an annual increase of 3.4 per cent.