The economy in Eurozone

The picture of the economy in Eurozone is hazy at best. This assessment is not without reason. Economic growth in the 19 countries forming the region rose by an upwardly revised 1.5% in 2Q15 from the 1.2% estimated earlier. A fall in the euro was helpful as it boosted exports. However, consumption at the household level and investment spending fell from the previous quarter.

Domestic consumption has been a key reason behind the US economy’s success in 2Q15 while countries like Japan and China have seen falls in economic output. But with the unemployment rate in the Eurozone at 11% as of August 2015 and the youth unemployment rate at 22.3%, the situation is far from rosy.

The math is simple: fewer people with jobs, coupled with slow wage growth, means less consumption spending. And though the depreciation in the region’s currency has been helpful, it may not be sustainable in the long-run. It’s clear, at least, that economic growth cannot reply on export growth only.

The Eurozone and Europe-Focused Mutual Funds: 2015 Overview

In September 2015, consumer prices in the Eurozone fell by 0.1% YoY (year over year), primarily driven by a fall in crude oil prices. Declining energy prices have haunted companies like EOG Resources (EOG), Anadarko Petroleum Corporation (APC), and National-Oilwell Varco (NOV). But apart from that, they’ve depressed inflation across the globe and have been dictating monetary policies to a large extent. Excluding energy prices, inflation in the Eurozone rose by 1.0% in September.

Speaking of monetary policy

European stocks were buoyant after Mario Draghi, President of the European Central Bank, hinted that the stimulus program launched in March 2015 can continue beyond its tenure, which, for now, is set to expire in September 2016. As we can see in the graph above, Europe-focused mutual funds (VGEAX) did not have a great September. So what does this mean for mutual fund investors?

In this series, we aim to analyze the performance of Europe-focused mutual funds. We’ll see how they’ve fared across periods and why so. In the final part of the series, we’ll try to draw up a composite picture for all who are either invested or are thinking about investing in Europe via the mutual fund route, taking into consideration the macro picture and outlook for the rest of 2015.

Continue to the next part of this series for a discussion of the first fund on our list, the Invesco European Growth Fund Class A (AEDAX).

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