Europe enters a sweet spot (for a change!)

The performance of the European economy, especially relative to that of the US, is fast becoming a tangible reality. And rightly so: the recovery is not only high-quality and broad-based; we believe it is likely to be supported by continued dovishness from the European Central Bank (ECB) and, thanks to the political uncertainty of recent months, risk-asset markets are a long way from pricing this in. There is a strong case that Europe has entered a summer sweet spot for investors.

In the hours after Emmanuel Macron’s convincing victory in the French Presidential election I wrote that investors could now focus their attention back on Europe’s fast-improving fundamentals. With the votes counted and the dust settling, we can turn to the detail of those fundamentals, and they are compelling.

Recovery is strong and broad based
Even before the vote in France we were keen to highlight Europe’s “quiet” recovery, pointing to robust real GDP growth, optimistic business climate and purchasing managers’ indices (PMI), credit growth, and falling unemployment. The latest estimate puts seasonally-adjusted annualised Eurozone GDP growth in the first quarter at 2.0%, up from an already impressive first estimate of 1.8%.

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