Australian companies are tipped to lag the world in earnings growth this year and, as the February reporting season begins, analysts at UBS say high commodity prices are still making up a big part of performance expectations.

Earnings per share (EPS) growth for Australian equities in 2017/18 is expected to be 7.4 per cent – a slowdown compared to 2017’s full-year growth of 15.8 per cent, UBS’s David Cassidy and Dean Dusanic say.

Without resource stocks’ contribution, full-year earnings growth is expected to be 5.8 per cent for Australian companies.

By comparison, with commodity prices still high, the resources sector is expected to grow by a better-than-average 7.9 per cent in the year.

Mr Cassidy and Mr Dusanic said in a research note that the forecast growth is “somewhat pedestrian” compared to the rest of the world and they have forecast the banks to be the major pull-down.

“Part of the reason for Australia’s comparative earnings sluggishness is the drag coming through from the banking sector with only 2.7 per cent earnings growth expected in FY18,” they said.

“Bank sector results are likely to be uninspiring but bad debts are likely to remain benign against a backdrop of low interest rates, stable unemployment and decent overall business conditions.”

UBS has flagged the possibility of surprise increases to dividends and fresh buyback programs in some companies’ half-year results, however.

“Qantas Airways, Harvey Norman and South32 are candidates for positive capital management surprise in our view,” the analysts said.

In the current environment, UBS says companies exposed to government infrastructure and housing construction should continue to benefit from strong conditions, while mining service companies should also deliver improved returns.

Retail stocks are likely to be mixed, with household goods and electronics looking strong and gaming slated to be relatively solid, while department stores and apparel are likely to suffer.

February’s results will also provide further guidance into the effects of the changes to the US tax rate for US-exposed companies, UBS said.

“Simplistically, a cut in the tax rate from 35 per cent to 21 per cent is a 20 per cent upgrade to US earnings, though we expect the actual benefit for Australian-listed US dollar earners will be substantially lower given lower effective starting tax rates and the impact of changes to various deductions,” the analysts said.

By Simone Ziaziaris