Corporate profit growth is expected to slow next year in many countries as higher inflation and rising interest rates continue to weigh on them as businesses brace for the possibility of a global recession. U.S. companies are forecast to post the slowest earnings growth for the entire year since 2020 and the onset of the coronavirus pandemic.

Some leading equities strategists are not predicting earnings growth or even decline. Investors, for their part, have watched valuations be revised downward in recent months. U.S. S&P 500 group earnings are expected to fall 1.1% year-on-year in the fourth quarter of 2022, the first quarterly decline since the third quarter of 2020, according to IBES Refinitiv data.

On this metric, analysts are projecting 4.7% earnings growth in 2023, after an estimated 5.7% growth for all of 2022 based on Refinitiv data. Jonathan Golab, director of U.S. group equity strategy at Credit Suisse Securities in New York, recently revised down his earnings outlook and expects the S&P 500 to contract year-on-year in 2023. “It’s all about inflation,” he said. . . . “Companies’ pricing power is driven by inflation, and their payroll costs are inflation.”

Last Wednesday, the Federal Reserve raised interest rates by 50 basis points, as expected, and its chairman, Jerome Powell, has predicted further rate hikes next year, even as the economy heads into a possible recession. The S&P 500 is down about 20% this year. And the S&P 500’s 12-month price-to-earnings ratio has fallen to around 17 from 22 at the end of December 2021, but remains above its long-term average of around 16, according to data from Refinitiv. European corporate profits are projected to fall sharply in 2023 after two successful years. Many companies listed in the pan-European STOXX 600 index have been able to cut higher costs by raising prices. However, any global recession will put pressure on consumers, and rising interest rates could create a difficult business environment. Finally, Emmanuel Cau, head of European equity strategy at Barclays, expects earnings per share to fall 12%.