European Q1 earnings set to rise 4% as energy sector surges
Corporate earnings for companies in the STOXX 600 index are forecast to grow 4 percent in the first quarter of 2026, marking a rebound after a decline in the final quarter of last year, according to LSEG I/B/E/S data cited by Reuters on Thursday. The turnaround is driven primarily by a surge in the energy sector, where crude oil prices inflated by the ongoing Middle East conflict have pushed earnings forecasts well above their levels at the start of the year.
Energy stands out as the leading contributor. Crude oil prices have soared since the U.S.-Israel-Iran conflict erupted in late February, with Brent rising from around $68 per barrel in 2025 to above $100 in recent weeks. Iran's effective closure of the Strait of Hormuz — a chokepoint through which roughly one-fifth of the world's oil supply passes — has pushed prices to levels not seen since 2022. European energy stocks in the STOXX 600 have rallied in parallel, with the sector gaining close to 6 percent since hostilities escalated in March.
Energy sector earnings are forecast to surge nearly 25 percent year-on-year in the first quarter, making it the primary driver of the broader index's earnings recovery. The projections have improved sharply from the start of the year, when analysts had penciled in only modest growth for the index as a whole. The upward revision reflects a significant reassessment of energy company profits as conflict-related supply disruptions persist.
The earnings rebound follows a disappointing fourth quarter, during which STOXX 600 profits fell approximately 0.4 percent year-on-year — the worst performance in nearly two years, according to LSEG data. Although 60 percent of European companies beat expectations during the Q4 results season, above the typical 54 percent average, those results did little to lift share prices as investors remained concerned about elevated valuations and geopolitical uncertainty.
While crude oil prices eased this week on growing hopes of a de-escalation — after President Donald Trump said the United States would "get out of Iran pretty quickly" — the durability of the energy-driven earnings boost remains uncertain. Goldman Sachs cut its eurozone growth forecast to 1 percent for 2026, citing the drag from elevated energy costs, while the European Central Bank projected inflation could peak at 2.9 percent in the second quarter.
Analysts have cautioned that the full economic impact of the Middle East conflict will take time to filter through to corporate results. The International Energy Agency said last week that more than 40 energy installations across nine Middle Eastern countries have sustained significant damage, which could prolong supply disruptions for months. Eurozone industrial output was already declining before the energy shock hit in March. Deutsche Bank forecast overall European earnings growth of 10 to 12 percent for the full year 2026, but acknowledged that this depends heavily on how quickly the conflict is resolved and energy markets stabilize.
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