Profits growth forecasts halved

GROWTH forecasts for British company earnings have been slashed by more than half in the past three months and there is no sign of any slowdown in the number of profit downgrades washing through the stock market.

Analysts' forecasts compiled by Thomson Financial show that earnings figures for 2001 - most of which will be published over the next three months - are now expected to come in at an average of 4% higher than in 2000.

Forecasts made before the 11 September terrorist attacks on the US predicted earnings increases averaging 9%. This figure was cut gradually from almost 13% at the start of 2001 but suffered its sharpest fall in October.

The figures, based on the forecast results of 1,100 of Britain's listed companies, also reveal no sign of a tail-off in the number of profit downgrades being made by analysts, suggesting the flow of bad news will continue for some time.

Earnings forecasts were cut at a greater rate in December than in any month last year except October, when the market was digesting the impact of the New York attacks. However, Ozan Akcin, Thomson Financial's global equity strategist, said the number and size of the downgrades in the US had fallen significantly in the past two months, a trend expected to move across the Atlantic by spring.

Analysts believe 2001 corporate earnings in the US will be 18.5% lower than in 2000. The size of the expected fall soared from 6.5% as the effect of the attacks was factored in. Average US earnings growth for 2001 of 9.1% had been forecast at the start of last year. But the rate of downgrades in the US fell gradually in the second half of 2001 to be running in December at half August's level.

'We are receiving some positive pre-announcement statements from companies in the US, which means they see some good things on the horizon,' Akcin said. 'We think we have seen the worst there.' He believes earnings expectations in Britain will hit a trough when the 2001 profit reporting season ends in April.

Thomson Financial's figures show Britain is the only region where profits are thought to have grown last year, with falls of 30% expected in the Pacific Basin and 22% in Europe. British earnings forecasts for 2002 have also continued to be cut in recent months, with average growth of 9.1% now predicted compared with 11.9% before the 11 September attacks and 12.2% a year ago. Growth of 14% is predicted for 2003.

In the US, 2002 earnings growth is put at 22.9%, rising to 27.5% next year.