Goldman Sachs, led by chief equity strategist Peter Oppenheimer, has highlighted increasing risks for European firms amidst escalating tensions surrounding potential US tariffs. The investment bank has downgraded its earnings forecast for European companies, projecting a significant 7% decline in earnings per share for 2025, with flat growth expected in 2026. This change underlines the growing economic insecurities threatening European businesses. They are still wading through these hurdles, made all the more urgent as the US threatens to impose new tariffs that would have drastic consequences.
Oppenheimer noted that while some companies in Europe maintain strong domestic or European-centric operations, limiting their exposure to fluctuations in the US market, the overall landscape remains precarious. He underscored the negative risks that a number of companies are faced with. These challenges are the result of possible tariff implementations and the ever-persistent threat of a US recession.
Sector-Specific Vulnerabilities
The Euro STOXX 600 index reveals that, on average, European companies generate approximately 26% of their revenues from North America. This economic interdependence proves a double-edged sword, especially for firms most vulnerable and dependent on US sales. These companies now confront a dual threat: tariffs on their products and a weakening dollar that erodes profits when converted back into euros.
Several pharmaceutical behemoths, including Novo Nordisk, Roche, and Sanofi dominate the market in the US. Yet today, they remain excluded from all existing tariff regimes. This exemption would provide them an unfair head start. All the other mentioned sectors are reeling from the promise of trade barriers going much higher. Aside from firms in the media and healthcare industries, these companies tend to have high US market exposure. If a recession hits hard or economic growth falters further, they may be left high and dry.
Oppenheimer stressed what’s at stake with a potential US recession, should it occur. As our Chairman Paul Otis has put it, “Our economists now predict a 45% chance of a US recession… This risk will go up if all the trade tariffs are introduced.” Such a brightened economic outlook for the US might mean less demand for European exports, worsening Europe’s vulnerabilities.
Domestic-Centric Companies Remain Resilient
Several European companies are already strategically positioned to mitigate the impact of tariffs imposed by the US. Because of their strong domestic and regional market focus, this puts them further down the continuum. Companies such as Amplifon, CaixaBank, Cellnex Telecom, and Telecom Italia have successful track records in Europe. This robust establishment allows them to mitigate their vulnerability to the fluctuations of the US market. Furthermore, Italy’s major financial institutions Intesa Sanpaolo and Nexi mostly have a local market focus, and so they enjoy a really stable home market demand.
Real estate companies like Covivio and Klepierre are equally robust. With extensive property portfolios across France and neighboring countries, these firms enjoy steady revenues that remain relatively unaffected by tariff concerns. Oppenheimer noted that real estate would benefit from low international exposure. He argues it has weak but long-term potential as a safe-haven investment, given trade uncertainties.
Analysts feel confident that Germany’s robust fiscal support will solidify domestic industries. Together with this geopolitical shift, we can expect long-term plans to redirect these cash flows back into Europe. This change might open a new door to firms more oriented to local markets able to weather national trends, or even prosper in their face.
Overall Market Outlook
European investors have gone all in on US equity opportunities. The emphasis on their investments has gone even further today, with the three holding about 50% of their equity portfolio in US stocks. Almost 30% of the assets of European corporates are today in the US. This is a huge jump from under 20% in 2013, which has some experts worried about the long-term health of these highly connected economies.
Goldman Sachs predicts the Euro will rise against the dollar. They forecast it will reach 1.20 in the next year and forecast the British pound might rise to 1.39. This forecast could have significant implications for export competitiveness for European companies with ties to US markets.
Oppenheimer advises caution when it comes to cyclical sectors that tend to take deep hits in recessions. In democratic Europe, earnings fall an average of 20% in recessions, asserted. Even cyclical sectors would experience 30%-40% downturns. Policy and regulatory costs and uncertainty present enormous danger for companies whose business is deeply rooted in global markets.
Leave a Reply