"Investors are losing faith in Europe," says Manish Kabra, of Bank of America Merill Lynch. Germany's DAX index has lost 10% from its recent high. Italy's main market is down 9%; the French CAC 40, down 15%.
Worries over Ukraine have been one factor.But the key problem isan old one: Europe "produces no growth",says Didier Saint-Georgesof fund group Carmignac.
The eurozone's recovery seems to have ground to a halt. After growing by 0.7% in the first quarter of 2014, GDP was flat in the second. For once, it wasn't the troubled periphery' causing the most worry. Portugal and Spain grew by an annualised 2.6%. "Even Greece seemsto be on the road back from Hades,"says Hugo Dixon on Reuters.
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But in France, where manufacturing and services activity is falling, output was stagnant. In Italy, a renewed slide in GDP in the second quarter was depressing but not surprising, as we noted last week. But the eurozone powerhouse, Germany, which accounts for 25% of the zone's GDP, also saw output fall.
One problem is the strength of the euro, which is hampering European exports. Italy and France are dragging their feet on economic reforms designed to boost growth, while nervousness over the crisis in Ukraine is starting to dent business confidence, notably in Germany.
Falling prices and negligible growth "are a potentially lethal combination for countries weighed down by debt",says The Economist's Graphic Detail blog.
The real value of debt rises,making the burden heavier and further denting confidence, investment and borrowing, raising the spectre of aJapan-style slump.
Given all this, the European Central Bank (ECB) is expected to have to resort to quantitative easing (QE money printing) to ward off deflation and weaken the currency.
QE's impact on growth may be questionable, but it does give stocks a lift as the printed cash finds its way into markets. This suggests that eurozone stocks remain worth buying. The Greek market remains among the world's cheapest, on a cyclically adjusted price/earnings ratio of just four.
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Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.
After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.
His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.
Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.
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