Europe fears greater credit crunch shock

Europe fears greater credit crunch shock

By Richard Milne in Frankfurt

Published: April 13 2008 18:31 | Last updated: April 13 2008 18:31

Europe will not escape the worst effects of the credit crunch, leading industrialists have warned, and could start to feel a greater effect within six months.

Although European executives have generally been more optimistic than their US counterparts about the fallout from the global financial market turmoil, some now fear they could soon be hit.

Peter Löscher, chief executive of German industrial group Siemens, told the Financial Times he believed the economy would start to be affected earlier than previously thought.

“I don’t see any impact at the moment. But I have no doubt it is coming, probably in six to 12 months’ time,” he said. “It has to affect the real economy – the credit crunch, exchange rates, raw materials increases and wage demands.”

Wolfgang Reitzle, chief executive of Linde, the world’s largest industrial gases group, agreed, saying: “It will happen with a time lag . . . of maybe a year . . . We are in the most critical business environment in decades.”

Others, such as Daimler’s Dieter Zetsche and Sergio Marchionne, chief executive of Fiat, remain hopeful that growth from markets such as China, Russia and the Middle East will make up for the weakness in the US.

However, as the first quarter earnings season starts in Europe today with earnings due from Philips, signs of pessimism have appeared in some quarters about the continent’s future.

After General Electric disappointed markets with a profits warning on Friday, analysts in Europe are expecting a mixed picture in the first quarter, while many of them forecast low or negative growth for the whole year. “This quarter is going to be pretty horrible. But the worst will come in the fourth quarter,” says Gareth Williams, European equity strategist at ING Financial Markets.

Teun Draaisma, head of European equity strategy at Morgan Stanley, says he expects the first quarter to be reasonable but is forecasting a 16 per cent drop in earnings over the whole year: “There are lots of uncertainties about timing. But the big certainty is that there will be an earnings recession in Europe.”