The level of European economic growth investors can expect to see this year will be sluggish at best...
The level of European economic growth investors can expect to see this year will be sluggish at best, with estimates from fund managers and economic strategists of around 1.5% for the year.
Chris Tracey, global strategist at JP Morgan Fleming, says: 'Despite improvement in European lead indicators over the last few months, eurozone economic growth is expected to remain relatively uninspiring for investors this year.
'Official estimates are for 0.1%-0.4% growth in the first quarter and 0.4%-0.7% in the second, with growth for the year estimated at a sluggish 1.5%.'
He notes that these figures, if correct, demonstrate Europe's economy is likely to continue to lag the US, which, he adds, is hardly exciting for equity investors.
Roderick Marsden, fund manager at JO Hambro Capital Management, is slightly more bullish about Europe. Marsden says: 'We are optimistic about the European market as it has not fallen as much as the US has this year.'
Marsden also expects 1.5% GDP growth for Europe this year and 2.5% for next year, but adds that there are a scattering of micro level stories showing businesses are becoming more confident of an upturn. In Sweden he has seen an upturn with total turnover in retail trade in February 2002 increasing 2.4% compared with February 2001.
Paul Casson, investment manager at Scottish Value Management, says that such micro stories are few and far between, however. Casson says: 'We are cautious on the growth outlook for Europe and it is continuing to lag behind the US. Although Europe has improved, we do not think there is any chance the European economies can grow faster than the US or the UK.'
According to Casson, retail sales figures posted recently have shown poor results in Germany and there has been no sign of a rebound. Despite poor economic conditions, consumers have continued to spend throughout the downturn in the economy and it is not likely they will spend any more. On the industrial side there has been a raft of profit warnings and there has been no major investment spending by companies in the telecom, technology and machinery areas.
The only signs of optimism have been the German IFO survey, adds Casson. There are two components of the survey, one about current conditions, the other about future expectations. The expectation component has been driven by the view that the US economy is recovering.
But Casson warns that on a micro company level, he has not seen much evidence of a recovery.
For Europe, Tracey says, the great hope remains structural economic reform, which in the long term should boost European corporate profits.
'However,' he says, 'the short-term outlook for reform is receding, with elections in France and Germany proving a particular obstacle as both incumbent governments block reforms that would exacerbate their unemployment problem. Other contentious subjects, such as pension reform, could also be put on hold for the time being, while fiscal policies are being loosened.'
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