Europe’s economic growth has deteriorated over the course of this year. A challenging external environment and domestic problems have weighed on exports and fixed investments.
In this CIO Special – Europe: weak growth and its investment implications – we assess underlying economic trends and potential policy support.
- Eurozone monetary policy is likely to remain ultra-loose, but hopes for a massive fiscal boost seem overdone.
- Weak European GDP growth is characterized by divergent dynamics in the export-oriented manufacturing sector and the more resilient services sector. We expect growth to remain weak, but do not expect a recession.
- Germany’s export-oriented economy has underperformed, while more service oriented economies such as Spain and (to some extent) France are holding up better. Politics poses additional headwinds for UK and Italian growth.
- We remain cautious on European equities due to sluggish earnings growth. On the fixed income side, we like EUR crossover as the ECB’s loose monetary policy strengthens the “hunt for yield” environment.
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