“There were clear signs of the eurozone economy reviving”

This article is part of
Spring Investment Monitor - March 2015

When people talk of ‘economic growth’, the US springs to the minds of many investors. There, growth appears to be outpacing that seen in other regions.

However, Europe has surprised investors since the start of the year with positive economic figures, helping to shake off investors’ perceptions that the eurozone is consumed with fending off deflation.

The positive economic news coming out of the US also seems to be paving the way for an interest rate rise later this year.

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“February closed with global stockmarkets advancing at a steady clip and moving clear of the turbulence that marked the start of the year, as the FTSE 100 index also sailed to a 15-year high,” Andrew Humphries, marketing and communications director at St James’s Place Wealth Management points out.

“Global investors have been buoyed by the European Central Bank’s decision to launch its ¤1.1trn (£797.6bn) or more bond-purchase scheme, as well as Athens’ temporary deal with its creditors. World equity indices were up over the month as global investors sought out stocks that reflect renewed growth potential across the global economy – not just in the US but also in Europe too.”

The US jobs market is looking buoyant too, with strong data coming out of the country in recent months. The economy created 212,000 jobs in February, according to payroll processor ADP, almost in line with the 213,000 recorded the previous month.

There are concerns that growth is slowing though, as other data coming out of the US is less positive. Manufacturing growth expanded at its slowest pace in February for a year with a purchasing managers’ index (PMI) reading of 52.9, down from 53.5 a month earlier, with any reading more than 50 reflecting expansion.

Luke Bartholomew, investment manager at Aberdeen Asset Management, observes that while the unemployment rate has recovered strongly, other labour market indicators, like the participation rate, have “languished”.

“The crux of the issue is that no one knows quite how many people the US economy can now employ without causing unpleasant side-effects,” he explains. “The financial crisis wiped out many jobs; some of which will never return… BAML [Bank of America Merrill Lynch] tells us that the number of industrial robots is up 72 per cent in the past 10 years; number of US manufacturing jobs down 16 per cent. It’s hard to judge how well the economy is doing if you can’t say how many people it can usefully put to work.”

Meanwhile, across the Atlantic there are some signs of growth in the eurozone, with Spain, Germany, France and Italy leading the way. The latest PMI survey shows that growth in the region hit a seven-month high in February this year. The data delivered a reading of 53.3 in the month, up from 52.6 in January. France’s growth was notable as it meant the country’s economy exited a period of stagnation.

Spain has been in recovery for a few months now with figures from the Instituto Nacional de Estadistica, the Spanish statistical office, confirming growth of 0.7 per cent in the final quarter of 2014, up 0.5 per cent on the previous quarter. The country’s year-on-year growth stands at 2 per cent, making it one of the leading lights in a hoped-for European recovery.