Europe gathers strength

Europe has defied expectations of another bad year, while the US and China stumble.

We heard a lot about "divergence" at the turn of the year. This was the idea that US growth would surge ahead, leaving other regions, especially Europe, standing. But it hasn't quite worked out like that, says Richard Barley in The Wall Street Journal. US data have been a little soft of late, while China has faltered too. Yet Europe is doing surprisingly well.

In March, activity in the manufacturing and services sectors hit its highest level in almost four years. First-quarter GDP growth looks set to come in at around 0.3%, says Markit's Chris Williamson, with 0.4% growth in Germany and 0.2% in France (an improvement after three years of stagnation).

Consumer confidence is at its highest level since before the global financial crisis started. In Germany, consumers are more enthusiastic about spending than they have been since 2006. No wonder falling oil prices have acted as a tax cut for European consumers.

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The credit squeeze is easing too, says the Buttonwood columnist in The Economist. Two widely watched measures of the money supply are growing by 4%-9%, a big improvement on a year ago. It seems banks may be working off their hangovers. Now that their balance sheets are stronger, they are more inclined to lend.


This gradual uptick actually pre-dated the European Central Bank's (ECB) quantitative easing (QE) scheme, says Christian Schulz of Berenberg, a German bank. "Much of what the ECB wanted to achieve with QE" falling bond yields, a weaker currency, and looser credit "happened before it started."

But QE has helped to buoy confidence and inflation expectations, which means there's more chance of avoiding a deflationary slump. And by hoovering up government bonds, the ECB has "insured" Europe against the threat of a Greek exit the yields on other highly indebted states' bonds have remained low.

This suggests that, even if Greece does leave the eurozone, then shares could keep rising. Recent history suggests that liquidity (availability of money) trumps fundamentals, and QE will continue until at least next year.The pan-European FTSE Eurofirst 300's multi-year rally isn't over yet.

Andrew Van Sickle

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.