Why analysts expect a further slowdown in Europe to be modest



In addition, many market watchers are concerned about slowing growth in the Eurozone. While the region is unlikely to boom anytime soon, there are some signs that any further slowdown there should be modest. A few countries, notably Spain, are benefiting from structural reforms, and demand for consumer credit appears to be rising. In addition, a weaker euro should help European exporters and provide some tailwind for the Eurozone.

declining euro

Market Realist – The graph above shows how the euro has been falling steadily this year against the U.S. dollar. The weakness in the Euro can help exporters and boost the recovery of the European (EZU) economy.

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The July 2014 Bank Lending Survey or BLS indicates improved credit conditions in Europe. As per BLS reports, the second quarter of 2014 saw easing credit standards for all loan categories. This was the first time standards of credit had been eased since the U.S. financial crisis (XLF) of 2008. The report also showed signs of growth in demand for loans across households and enterprises. The BLS observed improvement in euro banks’ net access to funding. Improving credit conditions in Europe will help the area to recover from the current economic slowdown.

The slowdown in Japan (EWJ) is also expected to be modest as the IMF estimates private investment to pick up in the region.

Investors are concerned about reports of a faltering Chinese (FXI) economy. The latest trade reports, however, paint a positive picture. Exports increased by 15.3% year-over-year in September versus the increase of 9.4% we saw in August. Growth in imports surged from -2% year-over-year in August to 7% in September.

Despite the slowdown in manufacturing and services, the IMF has kept the growth forecasts for the economy unchanged at 7.4% for 2014. A prolonged housing and property slump still plagues the Chinese economy, but government officials don’t expect a hard landing despite the real estate worries. Government estimates for the GDP growth rate remain at 7.5%.

So, though there’s a definite divergence in international markets (QWLD), the slowdown is expected to be modest. Fears about a recession may prove unfounded.

Read on to the next part of this series to learn what this means for investors.


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