“I’m in the unusual situation where I’m a bit more optimistic than analysts’ consensus,” he highlights.
Mr Kreckel’s forecast is based on a model that tracks how earnings have behaved during the past 20 years. It factors in changes in sales-weighted GDP growth to reflect companies’ global sales and the absolute level of GDP growth, taking into account euro and commodity prices.
Dennis Jose, Barclays’ European equity strategist, is even more bullish, expecting earnings growth for Europe ex-UK companies of approximately 15 per cent this year.
He argues analysts’ forecasts did not seem to have taken into account the European cyclical recovery. European companies’ cost line could be much lower than in previous cycles because of wage-cost adjustments. Moreover, their debt refinancing costs could be lower because interest costs and corporate bonds are extremely low.
Another positive voice is Can Elbi of Swiss & Global, who manages the JB Europe Focus fund. He believes European earnings are in a trough and a three to four-year earnings upcycle will start in 2014.
Among the dissenters is Jake Robbins, manager of the Premier Global Alpha Growth fund, who does not expect earnings to recover this year. He is sceptical GDP recovery in Europe will drive growth.
“I would agree economies have stabilised but there’s little evidence that GDP is accelerating in a meaningful way,” he explains.
“In countries with extremely high joblessness, like Spain and Portugal, economic growth will not be enough to create new employment,” he argues.
Overcapacity and lack of pricing power will make it difficult for companies’ earnings growth to pick up significantly. He suspects expectations for European corporate earnings will halve from an aggregate 10-11 per cent at the start of 2014, to roughly 5 or 6 per cent by the end.
On the discrepancy between the rising market and earnings downgrades, Mr Robbins says: “The stockmarket does not seem to care. It’s very unusual for stocks to go up for such a long period of time in the face of earnings downgrades.”
