We remain cautious of economic growth in Europe owing to the rise of political headwinds namely….
By Aneeka Gupta – WisdomTree
Brexit in March 2019, dwindling popularity of the grand coalition party in Germany, the EU parliamentary elections in May 2019 and Italian government’s fiscal budget proposal.
Current European GDP growth at 1.9% in 2018 is expected to slow to 1.6% in 2019 and 1.5% in 2020.
The impact of the trade concerns on the European auto sector is now being felt across the supply chain. Original equipment manufacturers have faced the largest setback.
As European stocks broadly derive almost 20% of their revenue from emerging markets, the recent weakness across emerging markets has also weighed on demand for European goods.
European corporate earnings have been strong in 2018 however the outlook remains strongly tied to a resolution around the trade uncertainties.
While the European Central Bank remains on track to end its bond buying programme by the end of 2018, it intends to reinvest the proceeds of maturing bonds purchased under the programme for an extended period and so monetary policy is poised to remain accommodative for a greater part of 2019 which should keep the Euro significantly lower.
We remain less optimistic on the outlook for European equities until political headwinds abate.