EUROPE: THE ROAD TO RECOVERY?

Weekly Economic Commentary
By John Canally Chief Economic Strategist, LPL Financial

In the wake of the European Central Bank’s (ECB) decision to embark on a bond buying program (quantitative easing or QE), policymakers and investors alike are looking for signs that the program is working. Although it is still too soon to tell — QE in Europe was only just announced on January 22, 2015, and the bond purchases themselves won’t begin until next month — the economic data in Europe in recent weeks have begun to exceed lowered expectations, and market based measures of inflation expectations have moved higher. But, market participants looking for an immediate and sustained response by the Eurozone economy to QE may be disappointed. Recall that the Federal Reserve (Fed) began its first round of QE in late November 2008, and after three years (2011, 2012, and 2013) of real gross domestic product (GDP) growth near 2.0%, the economy finally found its footing in 2014, and we continue to expect that the U.S. economy may grow at 3%+ in 2015.*

Lower oil prices and a falling euro may also help to nudge Eurozone growth higher in the coming months and quarters.

As was the case in the United States in 2008 and 2009, the Eurozone economy cannot start getting better until it stops getting worse. Even before the ECB’s announcement on January 22, 2015, key readings on the economy and banking system had stabilized and had begun to turn higher, providing the Eurozone economy with a little momentum ahead of the QE. In recent weeks, several economic data reports (listed below) all suggest that the Eurozone economy had stopped getting worse in late 2014 — after another year of subpar growth. In addition, lower oil prices (Europe is a big oil importer) and a falling euro (which makes European goods and services cheaper in the global marketplace) may also help to nudge Eurozone growth higher in the coming months and quarters….Read the Full Report here: Economic Commentary 02092015

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