European corporate earnings are expected to decline slightly in the second quarter of 2025, according to the latest forecasts, amid persistent global trade tensions and the looming threat of U.S. tariffs. Analysts now predict a modest 0.3% year-on-year drop in earnings for companies on the STOXX 600 index, a slight improvement from the 0.7% decline estimated last week. Despite this marginal uptick, the overall outlook remains cautious as businesses navigate an increasingly unstable trade environment.
The deterioration in earnings expectations has been ongoing since U.S. President Donald Trump announced plans for “reciprocal” tariffs in February. Before that announcement, analysts had projected a 9.1% year-on-year increase in second-quarter earnings for European firms. The shift underscores the market’s sensitivity to trade policy shifts, especially as the European Union weighs countermeasures to protect its industries from potential U.S. levies.
Revenue expectations for the quarter have also slipped further, with analysts forecasting a 3.1% decline across the STOXX 600, compared to a 3.0% drop estimated last week. This would mark the weakest quarterly revenue performance in over a year. In contrast, Q2 2024 saw a 3.0% rise in earnings and only a 0.8% fall in revenues, signaling a worsening business environment year over year.
Industry leaders are already feeling the impact. Stellantis, the Italian-American auto group, reported a €300 million hit due to current tariff conditions, while pharmaceutical giant AstraZeneca revealed plans to invest $50 billion in expanding its U.S. operations by 2030—likely a strategic pivot to offset future trade risks. These moves highlight how firms are reacting preemptively to mitigate financial exposure.
Sector-specific forecasts show uneven performance. Technology companies on the STOXX 600 are expected to report a strong 26.5% jump in earnings, indicating robust demand or strategic resilience. In stark contrast, earnings for consumer cyclical sectors—such as automotive, retail, and entertainment—are projected to plummet 23.6%. The sharp divide reflects how different industries are absorbing or deflecting the shock of trade volatility and broader economic pressures.
Source: Reuters