Goldman Sachs has cut its growth outlook for Europe in 2026 and recalibrated equity sector guidance after its commodities strategists raised their projections for oil and gas prices, the bank said in a recent report.
The commodities team now expects oil to average $77 per barrel in 2026 and forecasts gas at 46 EUR/MWh on average, inputs that prompted economists at the firm to lower their euro-area Q4/Q4 growth forecast to 1% for the year. At the same time, Goldman Sachs now sees headline inflation peaking at 2.9% in the second quarter of 2026, compared with a prior projection of 2% before the war.
The brokerage left its European Central Bank policy forecast unchanged, but it pushed out the expected timing of Bank of England rate cuts. The tougher energy outlook also affected U.S. projections: Goldman Sachs trimmed its 2026 Q4/Q4 U.S. GDP growth forecast by 0.3 percentage points to 2.2% and raised its forecast for peak U.S. unemployment to 4.6%.
On U.S. policy timing, the firm delayed its first expected Federal Reserve cut from June to September and now projects a second cut in December. The report left the Fed's terminal rate unchanged at a range of 3% to 3.25%.
Equity targets and valuations
Goldman Sachs maintained its STOXX Europe 600 price targets at 605, 615 and 625 on 3-, 6- and 12-month horizons, respectively. Those targets imply 1%, 3% and 4% upside from the March 12 close of 599. The bank trimmed its Euro STOXX 50 targets to 5,800, 5,900 and 6,000 from prior targets of 6,000, 6,100 and 6,200. Conversely, FTSE 100 targets were raised to 10,500, 10,600 and 10,800 from 10,100, 10,300 and 10,400.
The STOXX Europe 600 is priced at 14.7 times forward earnings, compared with a 2022 trough of 10.4 times. As the report put it, "Europe remains attractively valued relative to the US, but it is no longer cheap, offering a smaller valuation buffer should geopolitical risks persist or intensify."
Sector moves
The brokerage adjusted sector recommendations to reflect the updated outlook. Changes included upgrades of Construction & Materials and Food, Beverage & Tobacco to overweight. Energy was raised to neutral and Financial Services was lowered to neutral. Media was downgraded to underweight, while Insurance P&C was added as underweight. Banks remain rated overweight. Autos and Chemicals remain underweight.
Earnings and longer-term profit expectations
Goldman Sachs projected 5% earnings per share (EPS) growth for the STOXX 600 in 2026 and 7% in 2027, figures that sit well below bottom-up consensus estimates of 11% and 12% for those years. The analysts cautioned that "EPS resilience does not mean equity resilience."
Regarding corporate results, of 504 STOXX 600 companies expected to report earnings, 444 had reported at the time of the note. Among those, 67.8% beat estimates by more than 5%. One-month EPS revisions were led by the Energy sector, which recorded a positive 3.5% revision, while Autos logged the steepest year-to-date EPS decline at 4%.
The bank's revisions reflect the transmission of higher commodity prices into growth, inflation and policy timing assumptions across regions. The report details how those commodity assumptions feed through to growth, inflation and central-bank expectations without speculating beyond the figures and policy timings it sets out.