Nine months ago, the outlook looked distinctly rosy for Irish public companies. Analysts had pencilled in earnings growth in the order of 15 to 16 per cent for the ISEQ on the back of a continuation of solid economic growth in Europe and the United States.
By mid-year, those earnings growth forecasts were pulled back to the order of 11 to 14 per cent as a US economic slowdown threatened to become a full-blown recession and euro-zone economic growth - particularly in Germany - remained sluggish.
Earnings downgrades became commonplace as a host of European and US blue-chips produced quarterly results that fell short of expectations, and also warned of a more pronounced slowdown in the months ahead.
And then came the horrors of the September 11th attacks. When markets finally came to grips with the implications of the assaults, it became clear a collapse in consumer confidence would accelerate the move to a US recession. It also emerged that the follow-on slowdown in European economies would impact on corporate earnings.
Irish analysts are pretty united that earnings forecasts for 2001 and 2002 need to be radically reviewed downwards. The only disagreement is the extent of that downgrade.
Goodbody Stockbrokers has recently reduced its ISEQ earnings growth forecast for 2001 from 13.9 per cent to 9.5 per cent, while the downgrade for 2002 is a more modest 14.2 per cent, from 16.6 per cent. In the process, Goodbody changed its forecasts for 25 Irish companies, most of them downwards.
Goodbody, however, added that many of those companies whose earnings forecasts have been cut are still in positive territory - in marked contrast to many of their international peers - and that this pointed to a continued relative outperformance by the Irish market.
Davy Stockbrokers, which has taken a far more bearish approach to both Irish and international economic prospects than other Irish commentators, has been significantly more aggressive in cutting its forecasts.
This week, Davy's Mr Robbie Kelleher said ISEQ earnings growth in the current year would be no more than 5.6 per cent, rising to 11.7 per cent in 2002. Davy analysts have also taken their knives to individual corporate earnings forecasts.
Most of the large capitalisation Irish stocks - even traditional market favourites such as CRH - have suffered in the wave of downgrades. Only the likes of low-cost airline Ryanair and foods group Kerry have escaped.
The major financial stocks - cyclical industrials such as Smurfit, tourism stocks like Jurys and Gresham, and luxury goods manufacturers like Waterford Wedgwood - are all suffering to some degree. Some of the reasons are obvious. Banks do not thrive in times of economic weakness and uncertainty, when manufacturers are hit by declining consumer demand.
In the case of the Irish banks, Merrion Stockbrokers has slapped a "sell" recommendation on all except First Active - largely on the basis that news flow from the banks over the next six to nine months is likely to be negative.
Which broking house is calling its forecasts correctly will largely depend on how accurately brokers are calling the economic downturn - and particularly the extent and the duration of the apparently inevitable recession in the United States.
If the US recession extends over two or more quarters, then Davy's gloomy prognostications may be the most accurate. If the recession is shorter, then the less bearish forecasts from the likes of Goodbody may prove correct.
