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(Reuters) - Goldman Sachs cut its 12-month forecast for Europe's STOXX 600 index for the second time this month and said it "anticipated more downgrades," cautioning that U.S. tariffs and a stronger euro could hurt corporate Europe's earnings.
The Wall Street brokerage trimmed its forecast for the index to 520 from 570, saying that consensus estimates projected a 5% year-over-year decline in STOXX 600 earnings-per-share (EPS) for the first quarter.
Earlier this month, brokerage had trimmed its forecast to 570 from 580.
"We anticipate further downgrades; historical trends between revisions and performance indicate that the market is currently factoring in a downward revision of more than 5 percentage points," Goldman said in a note dated Friday.
Last week, with U.S. tariffs postponed by 90 days, EU finance ministers pledged unity in negotiating a trade deal with Washington, noting the tariffs were more harmful to the U.S. economy than to Europe's.
The brokerage expects European EPS for 2025 to contract 7% compared to its previous estimate of a 2% growth, significantly below the consensus expectation of a 4% growth.
"Our (EPS) forecast reflects the uncertainty following the tariff announcements and the increase in the US recession risk," Goldman said.
Apart from tariffs, European companies are particularly exposed to the risk of a strong euro, given that approximately 60% of the STOXX 600 revenues are generated outside of Europe.
The euro has risen about 10% so far this year.
Lower energy prices could also pressure energy and basic resources sectors, added Goldman.
In terms of sectors, energy and financials are expected to be the largest drags on the index, the brokerage said, while technology and industrials may offer some positive contributions.
The brokerage also lowered its 12-month forecast for the UK's benchmark FTSE 100 index to 8,500 points from 9,100.
Separately, Citigroup on Monday downgraded U.S equities to 'neutral' from 'overweight' and also revised its stance on Japanese and emerging markets stocks.
(Reporting by Akriti Shah and Siddarth S in Bengaluru; Editing by Varun H K)
