George Leong: Europe is open for business. Well, kind of. The region—namely the 19-country eurozone—has recently been in the news with the Greece fiasco and its potential exit.
Greece now has a four-month reprieve in the form of an extension to its current bailout loans and terms, but the distressed country still has to convince eurozone finance ministers that its revised bailout plan for austerity measures makes sense.
For the time being, we are seeing some progress in the eurozone that points to growth. I had been worried about the negative impact from the Russian mess, but so far, it appears to be a non-issue. In the end, Germany, the strongest member of the eurozone, remains on solid footing and that’s what really matters.
What’s Behind the Eurozone’s Economic Progress?
The region is also being driven by the flow of easy money after the previous decision by the European Central Bank (ECB) to maintain near-zero interest rates and buy back about US$70.0 billion in eurozone bonds monthly. Sound familiar? It’s just like what the Federal Reserve did for years. The ECB’s similar actions will likely mean gross domestic product (GDP) growth and higher stock market prices ahead in the region.
Now the eurozone is not as strong in its recovery as the U.S., but I sense there will continue to be good investment opportunities to come, especially given the cheaper relative valuation of the eurozone.
Depending on whom you listen to, the eurozone’s GDP is expected to expand anywhere from 1.2% to perhaps as high as 1.5% this year. Again, not great, but it’s pretty good and should get better as long as the easy money works and the region continues to strengthen. A resolution in Russia will only help the situation.
Retail sales in the eurozone grew at an annualized 3.7% in January, which is pretty good and the best reading since August 2005.
Unemployment remains an issue, but it did improve to 11.2% in January, the lowest rate in about three years. An improving economy will only help to create more jobs.
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