Is Europe on a roll?
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Is Europe on a roll?

According to Bloomberg columnist Mark Gilbert – the company’s former London Bureau chief and a seasoned author on economics, finance, and politics – European growth will prove naysayers wrong next year. With Brexit looming and populism making headlines on the continent, any good news coming out of Europe is welcome. And, if Gilbert is to be believed, the economic news coming from the continent is good, has been good, and will continue to be good.

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Gilbert notes that important economic indicators like Purchasing Manager Index surveys are showing positive signs. And he is not alone in believing that this could translate into higher growth than is currently forecast. It is, in fact, an echoing of Dominion’s chief investment officer, Arjen Los, from February. In his economic outlook for the month, Mr. Los wrote:

“The [European] economic tailwind is likely to continue this year based on leading indicators. The European Commission’s Sentiment Indicator, for instance, jumped to a 70 month high in January reaching 108.2. Based on the historic relationship between this indicator and subsequent economic growth this latest reading suggests GDP growth of some 2.5%; a clear acceleration from last year, and ahead of the current IMF forecast (+1.6%).”

Gilbert wonders, as we all might, why forecasts for Euro Zone growth have been overly pessimistic for the last few years – in both 2015 and 2016, the region beat expectations. His answer is politics:

“Europe's political backdrop is mostly to blame for making things seem bleaker than they really are. In 2015, the prospect of Greece tumbling out of the euro sparked jitters that spread to the bond markets of Italy and Spain. Last year, Britain's vote to leave the European Union undermined confidence in the region's economic prospects.”

However, ignore these populist rumblings (we get La Pen and Brexit this year), and “the strength of the underlying economy in the euro zone comes into focus.”

Disclosure

The opinions in this article do not reflect those of Dominion Fund Management Limited, and in the instance of any forward-looking statements, these should not be construed as advice.


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