As Europe's debt crisis raises the risk of a recession,companies in the region show no signs of slowing with earningsgrowth poised to top their U.S. rivals.

Net income for companies in the Stoxx Europe 600 Index will riseby 10.5 percent in 2012 after increasing 11 percent this year, ledby carmakers such as Porsche SE and retailers including BurberryGroup Plc, according to more than 12,000 analyst estimates compiledby Bloomberg. The gauge is headed for four straight years of incomegrowth exceeding 10 percent, the longest streak since 1998, datashow.

Bulls say the 16 percent tumble in European stocks sinceDecember has created bargains because profit growth will exceed the10.1 percent estimated for U.S. companies, even though the economyin the 17-nation euro zone is expanding at one-third the pace,according to economists surveyed by Bloomberg. Bears have noconfidence in the earnings forecasts when sovereign borrowing costsare reaching records on concern Greece may default.

“Companies are in a lot healthier position going into a downturnthan in 2008,” said Luke Stellini, who helps oversee $636 billionat Invesco Ltd. in Henley-on-Thames, England. “The debate is hownorth the recession in Europe may spread, but I'd argue that equityvaluations take account of most scenarios already.”

International demand will help push net income up more than 10percent next year at mining companies, retailers and builders,analysts say. As much as 54 percent of sales in the Stoxx 600 comesfrom outside Europe, according to data compiled by Royal Bank ofScotland Group Plc. Earnings in the Stoxx Banks Index may gain 23percent in 2012, the data show.

Analysts' predictions for 2012 imply a fourth year of growthtopping the 8 percent average since 1981, data from Bank of AmericaCorp.'s Merrill Lynch division show. The forecast for this year'sexpansion in Stoxx 600 earnings has dropped to 11 percent from 21percent in January. Projections for 2012 fell 3.5 percent inOctober, the most since March 2009.

The Stoxx 600 lost 2.3 percent to 226.74 at 8:50 a.m. in London.The European gauge slid 3.7 percent to 232.17 last week asgovernment bond yields rose. The index ended last week at 9.2 times2012 profit forecasts, compared with a median of 10.3 times overthe past five years, data compiled by Bloomberg show. The Standard& Poor's 500 Index in the U.S. slipped 3.8 percent to 1,215.65,bringing its ratio to 11.1 times 2012 estimates.

“European markets are a mess and there is a debt crisis, but ifyou look at specific companies, they are doing fine,” HerbertPerus, who helps oversee about $36 billion as head of globalequities at Raiffeisen Capital Management in Vienna, said in aphone interview. “No one believes in it at the moment, but I don'tthink it is unrealistic that earnings will grow again.”

Yields on Greek two-year notes climbed to a record 115.49percent last week while borrowing costs in Spain and Italy rose toeuro-area records this month as the debt crisis spread. Economistshave lowered projections for the euro zone's 2012 GDP growth to 0.7percent from 1.8 percent in January, according to the medianestimate of 21 respondents in a Bloomberg survey. U.S. GDP ispoised to expand 2.2 percent.

Greece and Portugal will contract this year, according toEuropean Commission forecasts. A report on services andmanufacturing in the region on Nov. 4 showed output decreased morethan initially estimated in October.

GDP in the euro zone declined from the third quarter of 2008through the second quarter of 2009, the only recession sinceEuropean Union data began in 1995. Earnings tumbled 57 percent in2008 amid the financial crisis that peaked with the collapse ofLehman Brothers Holdings Inc. in September of that year, accordingto data compiled by Bloomberg.

Profits retreated an average 31 percent in four contractionssince 1980, data from Bloomberg and Charlotte, North Carolina-basedBank of America show.

“Politicians have missed their opportunity to prevent a Europeancredit crunch,” said Azad Zangana, a London-based economist atSchroders Plc, which oversees $345 billion. “Many euro-zone banksare already on life support. We are now forecasting a seriousrecession in the euro-zone in 2012, which is also likely to resultin recessions in the wider European region.”

German investor confidence fell to a three-year low, a report onNov. 15 showed. Retail sales in the region decreased 0.7 percent inSeptember, more than economists predicted, data released Nov. 7show. The European Union's statistics office said Nov. 14industrial production slipped the most in 2 1/2 years inSeptember.

“This highlights how much of an effect the sovereign debt crisishas had on corporate confidence and capital expenditures,” saidJames Butterfill, who helps oversee $63 billion as global equitystrategist at Coutts & Co. in London. “It is difficult to seewhere earnings growth will come from.”

Profit fell 11 percent on average between 1991 and 1993, MerrillLynch data show, after the U.S. savings-and-loan crisis curbedglobal growth. Profits declined 27 percent in 1981 as risinginterest rates shrunk the U.S. economy.

Companies see no such reversal in 2012. Anglo American Plc, theLondon-based mining company that analysts expect will boostearnings by 15 percent next year, has dropped 29 percent in 2011.Chief Executive Officer Cynthia Carroll said Sept. 29 her industryhas a “very, very solid” outlook as China expands.

Carroll spent $5.1 billion in cash on Nov. 4 to buy theOppenheimer family's 40 percent stake in De Beers, the world'slargest diamond miner. Anglo American trades at 6.13 times nextyear's estimated earnings, near the lowest since the bull marketstarted in March 2009.

Porsche is the fourth-cheapest stock among 49 car and auto partscompanies in the MSCI World Index after falling to 4.9 times 2012estimates, about half its valuation at the start of the year. Thecompany said Oct. 28 nine-month profit at its carmaking unit rose25 percent on demand for the Cayenne sport- utility vehicle.

Porsche expects sales to reach a record in 2012, a person withknowledge of the matter said Oct. 13. Porsche in Stuttgart, Germanymay boost profit by 46 percent next year, according to analystssurveyed by Bloomberg.

Burberry, the U.K.'s largest luxury-goods maker, said Nov. 15 itcan weather Europe's sovereign-debt crisis by focusing on wealthyclients in cities such as New York and Hong Kong. The 155-year-oldmaker of leather bags and trench coats gets more than half of salesin 25 “very strong” city markets with high net-worth individualsand tourists, Chief Executive Officer Angela Ahrendts said on aconference call that day.

Edmund Shing, a strategist at Barclays Plc in London, saysstocks have fallen too far. Profits growth may be in “the mid-single digits” next year, he said.

“We don't believe it is time to throw in the towel and abandonthe European equities ship,” said Shing. “Weather-worn and creakingthough it may be.”

Bloomberg