MacroResearchBoard

The Euro Area: The Bar Is Now Very Low – February 25, 2019

The Euro Area: The Bar Is Now Very Low

One of the major sources of global economic angst over the past year has been the persistently disappointing performance of the euro area. The manufacturing sector have been the major drag on regional growth, masking decent conditions in the service sector and healthy employment gains. However, manufacturing activity is widely seen as the bellwether indicator of overall conditions, and has dominated the narrative in the financial markets.

Our research team has examined the regional economy in detail, as well as the four major member nations, namely France, Germany, Italy and Spain. Export weakness and several idiosyncratic factors have painted an unduly dark picture, and we expect these dark clouds to gradually clear as the year progresses. The good news is that the regional economy in aggregate has healed considerably this decade, becoming considerably more competitive (excluding France!). The economic expectations’ bar is now very low, and we expect regional equities and the euro to benefit over the next 6-12 months.