Europe’s recovery stalls

The European Central Bank is expected to resort to money printing to kickstart growth.

"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.

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.

705-FTSEurofirst

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.

Recommended

The charts that matter: the dollar extends its fall
Global Economy

The charts that matter: the dollar extends its fall

The US dollar took quite the tumble this week. Here’s how the charts that matter most to the global economy reacted.
17 Apr 2021
Why you should expect another stockmarket crash
Stockmarkets

Why you should expect another stockmarket crash

Many fear inflation, but a deflationary debt collapse is a more likely scenario in the near term, says Tim Lee
16 Apr 2021
What does the Coinbase listing mean for bitcoin and other cryptocurrencies?
Bitcoin

What does the Coinbase listing mean for bitcoin and other cryptocurrencies?

As the bitcoin price hit new highs, the world's biggest cryptocurrency exchange, Coinbase, listed on the stockmarket. John Stepek looks at what that m…
15 Apr 2021
US inflation is rising – but it’s not enough to rattle markets yet
Inflation

US inflation is rising – but it’s not enough to rattle markets yet

The latest US inflation figures showed that consumer prices are rising more rapidly than expected. But markets shrugged. John Stepek asks why, and wha…
14 Apr 2021

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
What does the Coinbase listing mean for bitcoin and other cryptocurrencies?
Bitcoin

What does the Coinbase listing mean for bitcoin and other cryptocurrencies?

As the bitcoin price hit new highs, the world's biggest cryptocurrency exchange, Coinbase, listed on the stockmarket. John Stepek looks at what that m…
15 Apr 2021
Properties for sale for around £400,000
Houses for sale

Properties for sale for around £400,000

From a converted church in Banffshire with views towards the Cairngorms National Park, to a period property in the Georgian market town of Beverley, e…
2 Apr 2021