Europe is Doing Better Than You Think

Eran Peleg, CIO March 20, 2017

In recent months, there has been much focus on the improving outlook for the US economy. Prices of US growth-oriented assets have move up swiftly to reflect this rosier scenario.

But the reality is that economic activity is looking better outside the US as well – a prime example is Europe.

The European region suffers from many structural problems which put a lid on the long-term trend rate of growth. However, this does not mean that it cannot enjoy cyclical upswings in economic growth. And at the moment, Europe is doing better than most people realize.

The Eurozone is currently enjoying a cyclical uptrend in growth and inflation. See charts of Purchasing Manager Indices (PMI) and Consumer Price Indices (CPI). As you can appreciate, the trend is fairly broad-based from a country perspective

                                                         Source: Bloomberg

Furthermore, inflation (on the ECB's preferred HICP measure) has recently increased to 1.9%, essentially hitting the European Central Bank's "at or just below" 2% target. This could herald a change in central bank monetary policy– will it push it to adopt a tighter stance?

So circumstances are changing in Europe – and as always, shifts in economic reality and monetary policy have implications for the outlook for European financial assets, including for the Euro. Watch this space.