Midway through the first-half reporting season analysts have been surprised by the strength of the earnings, particularly from diversified industrials.
But the uncertain interest rate environment and the Reserve Bank's aim to reduce non-farm GDP growth from 4.5 per cent to 2.75 per cent is creating concern that earnings will slip.
Citigroup head of economics Paul Brennan said the bank's equities analysts had downgraded earnings growth for 2008 to 5.6 per cent, but the 2009 target had been maintained at 12.3 per cent.
"The prospect of inflation reaching close to 4 per cent and only falling back to the top of the RBA's inflation target through a material rise in unemployment is not a healthy backdrop for the equity market," he said.
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