Zeichen für Aufhellung in der Euro-Zone

Only a few months ago the eurozone was in meltdown. Bond spreads were widening, the political environment appeared fragile and earnings estimates were falling. It was hard to see any positives. However, it does now appear that the economic background is improving. Furthermore, valuations are attractive.

According to Eurostat estimates, the 17 eurozone member states showed seasonally-adjusted growth of 0.3% in the second quarter of 2013. Significantly, Europe’s largest economy Germany saw growth of 0.7%, but France also performed well, registering a surprisingly strong figure of 0.5%. In Portugal, the economy grew for the first time in two and a half years – by as much as 1.1%. Meanwhile, Spain and Portugal reported a drop in unemployment for the first time in two years.

Business confidence is also recovering. Eurozone firms are more optimistic than they have been for 18 months. The Markit purchasing managers' index rose from 48.7 to 50.5 points, taking it above the threshold marking growth. This should point to an uptick in earnings, which have suffered a long period of negative revisions. Moreover, the pace of change is particularly interesting versus the US market. European earnings are down by 4% year on year (compared to the 2% decline seen in the US) but it is clear below that we have reached a turning point.

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