Europe’s corporate earnings landscape for 2025 is poised to encounter substantial headwinds, primarily driven by the euro’s robust appreciation. This currency strength is anticipated to significantly dampen second-quarter earnings across companies listed on the STOXX 600 index. Coupled with softening global demand, this environment presents a formidable challenge for European multinationals and exporters, a trend recently underscored by analyses from leading financial institutions like Bank of America.
- The euro-dollar exchange rate surged 9% last quarter, reaching a four-year high.
- The European Central Bank’s trade-weighted euro index rose 4.6%, hitting an unprecedented high on July 1st.
- Wall Street analysts project a 3% year-over-year decline in STOXX 600 earnings per share (EPS) for Q2.
- Energy and Consumer Discretionary sectors are expected to be the primary detractors from overall index earnings.
- Consensus EPS growth expectations for 2025 and 2026 have been pared by approximately 5% since early April.
- Bank of America forecasts a 4% year-on-year decline in STOXX 600 EPS for 2025.
The Euro’s Impact on Corporate Earnings
The euro’s recent ascent has been remarkably pronounced, with the euro-dollar exchange rate experiencing a significant 9% surge over the last quarter. This propelled the currency to a four-year high, marking its strongest quarterly performance since late 2022. Concurrently, the European Central Bank’s trade-weighted euro index recorded a notable 4.6% rise last quarter, reaching an unprecedented peak on July 1st. This rapid and substantial appreciation establishes a difficult backdrop for European corporations, particularly those with significant international revenue streams and export-oriented operations.
As the second-quarter earnings season gets underway, Wall Street analyst consensus points to a 3% year-over-year decline in earnings per share (EPS) for the STOXX 600. This projected downturn is paralleled by an anticipated 3% contraction in sales, reflecting the dual pressures of faltering global demand and adverse foreign exchange dynamics. Such a performance would signify the weakest growth observed for the index in five quarters, highlighting the immediate challenges faced by European businesses.
Sectoral Performance and Market Dynamics
From a sectoral perspective, the energy and consumer discretionary industries are broadly anticipated to be the primary drags on overall index earnings. Their expected underperformance is set to outweigh the sustained resilience observed within the healthcare sector. After two consecutive quarters of expansion, cyclical sectors, excluding financials, are now forecasted to revert to contraction, with their EPS projections having been reduced by 2.5% in the last month alone. Andreas Bruckner, an equity strategist at Bank of America, commented on this anticipated negative shift for cyclicals, acknowledging that while positive Eurozone macroeconomic surprises typically signal robust earnings, the euro’s prevailing strength introduces a substantial and complicating risk factor. Financials, which previously provided a significant boost to earnings, are expected to contribute only marginally this quarter.
Long-Term Outlook and Macroeconomic Headwinds
The long-term earnings outlook for European companies has also been subject to a downward recalibration. Since early April, consensus EPS growth expectations for both 2025 and 2026 have been trimmed by approximately 5%. This broad-based downgrade has affected 17 out of 20 major sectors, with the automotive industry experiencing one of the most notable revisions. The anticipated 2025 EPS growth rate has effectively halved, falling from 6% to 3%, a revision that has pushed the STOXX 600’s 12-month forward EPS 3% below its March peak. Bank of America projects a more significant 4% year-on-year decline in 2025 EPS. This more cautious outlook is attributed to persistent global trade headwinds, the adverse impact of tariffs, and a decelerating pace of investment in the United States, all of which disproportionately affect Europe’s extensive network of exporters and multinational corporations.
Jonathan Reed received his MA in Journalism from Columbia University and has reported on corporate governance and leadership for major business magazines. His coverage focuses on executive decision-making, startup innovation, and the evolving role of technology in driving business growth.