Goldman Sachs Research anticipates a 9% total return for the STOXX 600 index in 2025, reflecting modest growth in European stocks amid economic headwinds such as weak growth, manufacturing struggles, and fiscal uncertainties in countries like France, Italy, and the UK. Lower interest rates, expected to drop to 1.75% by mid-2025, could benefit indebted sectors like telecoms and real estate, as well as consumer-facing industries like retail and travel.
The team sees potential opportunities for small- and mid-sized companies due to their sensitivity to lower rates and expected M&A activity, but they remain cautious about cyclical vulnerabilities tied to weak economic growth. Exchange rate fluctuations, such as a weaker euro, could provide competitiveness for European companies but may deter foreign investment.
Growth for European companies relies significantly on markets outside the region, particularly the US and China. While US equity performance has been strong, Goldman Sachs suggests Europe might gain traction if US valuations falter or major economic shifts occur. Lower inflation and reduced interest rates could also improve European stock valuations, offering an upside not fully reflected in current forecasts. goldmansachs.com
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