European Corporate Earnings Growth Slumps to Seven-Quarter Low Amid Persistent Economic Headwinds

European companies are projected to post their weakest earnings growth in seven quarters, with analysts citing inflationary pressures, sluggish demand, and tightening monetary policy as key constraints. The downturn reflects a broad-based strain across major sectors.

European corporate earnings growth is expected to contract by 1.2% year-over-year in the fourth quarter of 2025, marking the weakest performance since the first quarter of 2023. This decline follows three consecutive quarters of sub-1% growth and signals a deepening challenge for the region’s business sector. The downturn is driven by broad-based weakness across manufacturing, consumer services, and industrial supply chains. Germany’s industrial output declined by 0.8% in November 2025, while France’s retail sales growth slowed to a 0.3% annual rate—the lowest in over a year. In the eurozone, the composite Purchasing Managers’ Index fell to 46.1 in December, below the 50 threshold that separates expansion from contraction. Major multinationals have already signaled deteriorating conditions. Siemens AG reported a 2.1% year-on-year drop in operating profit for the final quarter, citing lower capital expenditure from European clients. Similarly, ASML Holding NV saw a 1.6% decline in revenue, reflecting reduced semiconductor investment cycles in the region. These results mirror broader trends: the average EBITDA margin for Eurozone firms fell to 18.4% in Q4 2025, down from 19.9% a year earlier. The earnings softness has triggered a reassessment of valuations across European equities. The STOXX Europe 600 index declined 4.3% in January 2026, with financial and industrials sectors underperforming. Investors are now pricing in a 68% probability of a rate cut in the eurozone by mid-2026, down from 82% in October, reflecting growing concerns over economic stagnation.