Inflation 2021 Lockdowns Threaten To Slow Q1 Earnings Recovery

2021 lockdowns threaten to slow Q1 earnings recovery

Johnson Okafor

A major chunk of the recovery in companies’ earnings expected in the first quarter is at risk of being pushed back further as lockdowns and mobility restrictions in several countries cloud hopes of a swifter economic recovery, investment banks said.

China announced lockdowns in four cities and European countries unveiled tighter and longer coronavirus restrictions on Wednesday, denting back-to-normal hopes and sparking worries about further economic damage in 2021.

Germany, Britain and the Netherlands indicated strict COVID-19 curbs would last into early February and Italy said it would extend its state of emergency to the end of April. Japan also expanded a state of emergency in Tokyo, hurting the prospects of holding an already delayed Summer Olympics.

Those actions prompted words of caution from major investment banks. Goldman Sachs said signs of gloom were creeping in with, 48 per cent of its clients expecting economic growth to undershoot expectations of 5.3 per cent growth in 2021.

Analysts’ earnings estimates for the first quarter did not reflect the worry either – Europe is seen reporting a whopping 40 per cent jump in profits, while the United States is forecast to see a 16 per cent rise.

“We see risks of downward guidance this earnings season,” BofA’s equity strategist Savita Subramanian said in a note, highlighting a consensus on US profits that points to just a three per cent drop vs. pre-COVID 2019 levels.


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