[LONDON] An oil price slump to multi-year lows, along with a weakening euro, is expected to boost most eurozone firms' earnings, even though economic growth is slowing and the energy sector itself will get squeezed.

The benefits of cheaper commodities, lower input costs and export-boosting currency moves for firms are expected to lift European companies' earnings by 25 per cent for the fourth quarter of 2014 alone and by 10 per cent throughout 2015, according to Thomson Reuters data.

Travel and tourism companies in particular will profit: Moody's recently changed its outlook for the global airline industry to "positive".

Retailers too are enjoying a knock-on effect as consumers spend less at the pumps and more in the shops.

Carrefour's sales growth accelerated in the fourth quarter, Hennes & Mauritz, the world's second-biggest fashion retailer, saw higher sales growth than expected in December, and Metro, Europe's fourth-biggest retailer, said a recovery gained pace at three of its four businesses in the important Christmas quarter.

While earnings momentum for the oil and gas sector has fallen to multi-year lows, according to Thomson Reuters Datastream, analysts expect earnings momentum for non-energy sectors to improve in the coming months, implying more analyst upgrades than downgrades.

"Analysts have been focusing on the short-term negative impact from the drop in oil prices, but longer term it will be a big positive factor," said Alain Bokobza, head of strategy, global asset allocation at Societe Generale.

A fall in the euro against the dollar - mainly on expectations of further quantitative easing by the European Central Bank - is also expected to help.

The euro has fallen more than 7 per cent against the dollar in the past month and is down around 17 per cent since mid-2014. Analysts say that a drop of 10 per cent in the euro could translate into a 6 to 8 per cent rise in company profits as a weaker domestic currency makes exports cheaper.

Investors are nonetheless grappling with the question of how contained the negative impacts of the oil price fall will be.

Energy companies account for less than 10 per cent of the total earnings of Europe's top 600 firms, but it is still unclear exactly how oil costing less than US$50 a barrel will feed through the global economy if prices and consumer habits get locked into a broader deflationary spiral.

Lorne Baring, managing director at B Capital Wealth Management, said the rapid pace of oil's fall had led to fears of a hit to economic demand rather than a more benign supply correction. "The steep decline in oil prices is now creating an economic and financial markets inflection point," Mr Baring said.

Although the full impact of the sector's pain has yet to be felt - BP and ConocoPhillips last week announced hundreds of job cuts in the North Sea - it is unlikely to make a big dent in overall European earnings because of the bigger number of sectors set to profit, analysts said.

While energy companies' earnings are likely to fall by nearly 16 per cent in the fourth quarter, according to Thomson Reuters StarMine, a positive outlook for European retail , automobile, technology and travel and leisure companies lifted their shares. Each sector gained between 5 and 12 per cent in the fourth quarter, against an 18 per cent drop for the energy sector

"The net effect, after taking into account a hit on the energy sector, will be positive for European earnings," said Robert Parkes, strategist at HSBC Global Research.

REUTERS