Europe Still Has Room to Run

Despite fretting over the French election, first-quarter European market data surged and the European Commission’s consumer sentiment survey is near its 2007 peak, according to a recent article in The Wall Street Journal. The question, it says, is “how good can it get?”

While Eurozone gross domestic product expanded by only 2% in 2015 and 1.8% in 2016, the article says, “the currency bloc is growing faster than potential, which many peg at 1% or so.” Much of the recent growth, according to WSJ, has come from domestic demand, adding that growth in the developing world may further boost the eurozone.

The article argues that Europe is still healing from the financial crisis and has “unused capacity.” Developments in the labor markets, it says, are of paramount importance. Unemployment has been falling since 2013, but is still well above pre-crisis lows.

“For investors,” says WSJ, “this might sound a little uninspiring. But that might actually be part of Europe’s allure. The eurozone recovery still has room to run and is being supported by ultra-loose monetary policy. Even if the European Central Bank starts to shift away from that, it is aware of the risks to the recovery and is likely to move gradually.”