* Q1 earnings set to drop year-on-year
* Earnings growth for 2016 already revised away
* February saw biggest downgrades for 7 years
* Top-line growth, cost control could support profits
By Alistair Smout
LONDON, April 26 (Reuters) - Analysts are unusually pessimistic about 2016 earnings as the first-quarter results season gets into gear in Europe, a situation which may actually end up supporting stocks if the global growth outlook is not as bad as feared.
Market turmoil and concerns over economic activity in the first quarter put the frighteners on European stock market analysts, who have already revised away hopes for double-digit earnings growth in 2016.
For each of the last five years, analysts have been overly optimistic about earnings for the full-year when heading into the first quarter earnings season, leaving the market disappointed when the downgrades eventually come through in the second half of the year, as this graphic shows: http://link.reuters.com/ned35v.
However, Q1 has seen analysts slash forecasts at a rate not seen since the financial crisis. That leaves room for earnings to surprise the market positively for once, and it could prove a support to the market, even if the actual first quarter results are as grim as expected.
"There has been a pretty dramatic capitulation from the consensus of analysts ... After the last five years of disappointment in terms of earnings estimates, analysts have moved earlier and they would hope that they are slightly ahead of the curve, unlike in the past," said Dennis Jose, European equity strategist at Barclays.
"All of that seems a bit too pessimistic to us, especially if our economists are right and we're not heading into a global recession."
First quarter earnings are expected to decline 18.6 percent from Q1 2015, with much of the drag coming from oil and gas firms after a slump in crude prices to their lowest levels in more than a decade. Even if one excludes the energy sector, earnings are still expected to decline 11.7 percent.
However, some analysts are taking heart from the experience of companies such as BP, which had earnings on Tuesday.
It rose 3 percent as it beat earnings estimates, even as it recorded a 80 percent drop in profit.
It said it would cut costs further in order to support profits, a trend that analysts said would support earnings throughout Europe this year, in addition to improving revenue.
"DOWNGRADES HAVE GONE TOO FAR"
"European earnings should still be improving because of a modest, moderate improvement in top-line sales growth, and very strong cost-control," said Andrew Milligan, global market strategist at Standard Life Investments.