The Daily Update - Eurozone growth picks up

Yesterday the euro rocketed past the 1.200 mark against the dollar; today it failed to maintain its recent momentum sliding back to around 1.195. Still that’s quite some gain year to date from the 1.05 level it begun the year on, and even further from the warnings of parity that were then forecast for 2017. Much of those previous expectations were based on hopes that Trump’s reforms would boost growth in America and at least one more political domino would fall in the Eurozone during the election season. It’s largely due to the failed-realisation of both of these that the dollar has weakened and the euro strengthened.

These developments, or lack thereof, are also presenting themselves in the growth forecasts in both these regions - with Moody’s both downgrading the outlook on the US and upgrading estimates for the Eurozone. Specifically in their ‘Global Macroeconomic Outlook’, Moody’s now forecast growth for this year and 2018 at 2.2% and 2% for Germany, 1.6% for France and even a respectable 1.3% for Italy (all notably higher than previous estimates of 1.6%; 1.3% and 1.4%; 0.8% and 1% respectively). Meanwhile US growth expectations for 2017 and 2018 were revised down to 2.2% and 2.3% (from 2.4% and 2.5%).

In aggregate this means a wider euro area GDP growth forecast of 2.2% this year and 1.9% next year, both up 0.3 percentage points, with global growth expected above 3%, up from 2.6% in 2016. So although there is a mixed picture with many regions’ underperforming (or rather being the victims of excessive optimism) ‘the global economy has maintained solid momentum in the first half of 2017’ and economies such as that of the euro area look to continue to grow ‘above-potential’ which have relaxed short and medium term concerns for the region. But how different are the longer term fundamentals really?

Look beyond the next couple of years and Eurozone growth ‘above potential’ is intrinsically unsustainable while demographics and credit imbalances, on both an individual and national level, act as persistent headwinds to economic growth for many advanced economies. Welcome as these revised growth figures are, for certain euro members it still seems like taking a pick-axe to their mountains of debt: debts that accumulated over a generation and have been ignored and serially bailed-out for a decade. Deleveraging on a national level is still barely underway, meanwhile the rally of European currency, debt and stocks continue and Eurozone economic confidence today just hit pre-crisis highs. The result of all this is that finding investments in Europe that offer relative value and strong enough fundamentals from a credit and net foreign asset perspective seem about as common as a European politician who supports the UK’s positions on Brexit.

Please read this important information before proceeding. It contains legal and regulatory notices relevant to the information on this site.

This website provides information about Stratton Street Capital LLP ("Stratton Street"). Stratton Street is authorised and regulated by the UK's Financial Conduct Authority. The content of this website has been prepared by Stratton Street from its records and is believed to be accurate but we do not accept any liability or responsibility in respect of the information of any views expressed herein. The information, material and content provided in the pages of this website may be changed at any time by us. Information on this website may be out of date and may not be updated or removed.

The website is provided for the main purpose of providing generic information on Stratton Street and on our investment philosophy for the use of financial professionals in the United Kingdom that qualify as Professional Clients or Eligible Counterparties under the rules of the United Kingdom Financial Conduct Authority (the "FCA"). The information in this website is not intended for the use of and should not be relied on by any person who would qualify as a Retail Client. Products and services referred to on this website are offered only at times when, and in jurisdictions where, they may be lawfully offered. The information on this website is not directed to any person in the United States. The provision of the information on this website does not constitute an offer to purchase securities to any person in the United States (other than a professional fiduciary acting for the account of a non-U.S person) or to any U.S. person as such term is defined under the Securities Act of 1933, as amended.

The website is not intended to offer investors the opportunity to invest in any Alternative Investment Fund ("AIF") product. The AIFs managed by Stratton Street are not being marketed in the European Economic Area ("EEA") and any eligible potential investor from the EEA who wishes to obtain information on the AIFs will only be provided with materials upon receipt by Stratton Street of an appropriate reverse solicitation request in accordance with the requirements of the EU Alternative Investment Fund Managers Directive ("AIFMD") and national law in their home jurisdiction. By proceeding you confirm that you are not accessing this website in the context of a potential investment by an EEA investor in the AIFs managed by Stratton Street and that you have read, understood and agree to these terms.

No information contained in this website should be deemed to constitute the provision of financial, investment or other professional advice in any way. The website should not be relied upon as including sufficient information to support any investment decision. If you are in doubt as to the appropriate course of action we recommend that you consult your own independent financial adviser, stockbroker, solicitor, accountant or other professional adviser. Past performance is not necessarily a guide to the future. The value of investments and the income from them may go down as well as up. An application for any investment or service referred to on this site may only be made on the basis of the offer document, key features, prospectus or other applicable terms relating to the specific investment or service.

Where we provide hypertext links to other locations on the Internet, we do so for information purposes only. We are not responsible for the content of any other websites or pages linked to or linking to this website. We have not verified the content of any such websites. Such websites may contain products and services that are not authorised in your jurisdiction. Following links to any other websites or pages shall be at your own risk and we shall not be responsible or liable for any damages or in other way in connection with linking.

By using this site, you should be aware that we may disclose any information that we hold about you to any regulatory authority to which we are subject, or to any person legally empowered to require such information.

This website uses cookies to improve user experience, by clicking the "I Accept" button below means you consent to the use of cookies on our website.