Global 2023 earnings growth: Recession, rate hikes seen jamming brakes

NEW YORK/LONDON: Corporate earnings growth is expected to slow in the year ahead in many countries as higher inflation and rising interest rates take an even bigger toll and companies brace for the likelihood of a global economic downturn.

US companies are forecast to have the slowest full-year profit growth since 2020 and the start of the coronavirus pandemic. Some top equity strategists predict no profit growth or even a decline in earnings. Investors have been watching estimates fall in recent months. S&P 500 fourth-quarter 2022 earnings now are expected to decline 1.1% year on year, which would be the first quarterly earnings fall since the third quarter of 2020, according to IBES data from Refinitiv as of Friday.

For the US benchmark S&P 500, analysts project full-year 2023 profit growth of 4.7% following estimated growth of 5.7% for all of 2022, based on Refinitiv data.

Jonathan Golub, chief US equity strategist at Credit Suisse Securities in New York, recently lowered his profit forecast and expects a decline in year-over-year S&P 500 earnings in 2023. “Everything is about inflation,” he said. “Companies’ pricing power is about inflation and the cost of their wages is inflation.” Last Wednesday, the US Federal Reserve raised interest rates by 50 basis points as expected to combat inflation, and Fed Chair Jerome Powell predicted more rate hikes next year even as the economy slips towards a possible recession.