- European growth has slowed. Political and economic uncertainty are major factors.
- Demand for euro area assets from Japanese investors remains strong.
- We think European economic growth is set to recover in the 2nd half of this year.
In the second half of 2018, euro area growth collapsed by more than 50%. This sharp decline was the result of many different factors including Brexit, China’s deleveraging scheme, the introduction of new emission standards, and the rise in oil prices. All of which have led to the European Central Bank revising down its forecast for economic growth.
“The most interesting thing about Europe at the moment is the underperformance in growth.”
Although Europe has had a tough 2018 we are optimistic about the fundamentals. The trade friction between the US and China has left the euro area in a tough situation, but we think that China will start to improve in the second half of 2019, leading to an increase in trade with many of the countries in the euro area. And finally something that we think has been overlooked is the increased interest from Japan. With Japanese investors purchasing $70 billion worth of euro area bonds from France and Spain, an almost historic record.
For more information read Uncertainty Rules
Chief UK & Euro Area Economist
Head of FX Strategy, Japan