Can the Eurozone Pull off a Real Recovery in 2017?

Steady economic recovery in the Eurozone

Global recovery and resilient domestic demand are expected to support Eurozone (EZU) (FEZ) recovery in 2017. The accommodating monetary policy stance and the deleveraging across sectors are also expected to help the pace of recovery in this region.

In this series, we’ll look at the factors that are suggesting robust growth the Eurozone. To be sure, economic growth is expected to improve equity performances across the region in 2017, but by how much? We’ll explore this question throughout this four-part series.

Can the Eurozone Pull off a Real Recovery in 2017?

Increased growth expectations in 2017

Real GDP in the Eurozone grew 0.4% in 4Q16, and economic recovery has been seen across most sectors and nations. Specifically, GDP advanced in Germany (EWG) at about 0.4% in 4Q16, up from 0.1% in 4Q16. France (EWQ) and Belgium (EWK) saw GDP growth rates of 0.4% and 0.5%, respectively, in 4Q16.

Meanwhile, labor market conditions have also improved in recent months, with unemployment rates falling by more than expected. However, economic policy uncertainty remains high in the broader region due to the UK’s recent vote to exit the EU and the prospect of more member nations moving out. In 2016, the Eurozone posted GDP growth on annual basis of 1.7%, as compared to 2% in 2015.

According to the ECB’s (European Central Bank) projection, the region’s real GDP is expected to grow 1.8%, 1.7%, and 1.6% in 2017, 2018, and 2019, respectively. At the same time, domestic demand has been the primary driver of the recovery since mid-2013, and the factors expected to support domestic demand in 2017 include the following:

  • the ECB’s accommodative monetary policy stance
  • Eurozone exports, which are projected to improve in 2017, backed by expected recovery in global trade
  • the weakening euro

Economic growth is essential for markets to perform well, and the Eurozone is no exception. Over the long-term, overall corporate earnings tend to rise as economies grow, and vice versa.

With these improved expectations, investors can opt for ETFs (exchange-traded funds) like the iShares MSCI EMU ETF (EZU) and the SPDR EURO STOXX 50 (FEZ), which have exposure to companies like Total (TOT), Siemens (SIEGY), Sanofi (SNY), and Banco Santander (SAN).

Now let’s take a closer look at the inflationary trend in the Eurozone.