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By HaleStewart March 25, 2015 7:44 am
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Has the EU Finally Turned the Economic Corner?

     Sometimes it seems the EU has been in a continual crisis since the end of the last recession.  Between the problems with Greece, a perennially slow economy and several periods of outright contraction, it often appeared the great experiment of creating a continent wide economy was doomed to be mired in economic mediocrity.  Adding to the problems was last year’s Russian invasion of Ukraine, which had a serous negative impact on the region’s largest economy, Germany.  However, several recent economic news releases point to stronger growth in the months ahead.  While all of this positive data has been occurring for less than six months, meaning it is too early to draw a firm conclusion, there is enough data to be hopeful. 

The first key piece of data is the increasing overall PMI released by Markit Economics:

The chart above shows the composite reading (which combines the service and manufacturing numbers) is at a 46 month high of 54.1.  The service index, whose latest level was 54.3, is also at a 46 week high.  Finally, the manufacturing sector’s latest level was 51.9, which is a 10 month high.

     Another key piece of data actually combines two related economic releases: consumer sentiment and the year over year percentage change in retail sales:

There is a very tight correlation between these two data points.  For the purposes of this article, the recent increase in sentiment points to a potentially higher retail sales number in the next few releases.  This is especially important because consumer spending has been a key driver of recent EU GDP growth. 

     The final piece of data is the ECB’s recently commenced asset purchase program, which is not only driving equity markets higher but is also sending the euro lower.  This leads to two important economic benefits: rising sentiment and increased exports. 

     The jury is still out on the EU’s growth profile this year.  Although recent news releases point to better growth in the year ahead, we still only have a few months of positive data, which isn’t enough on which to base a long-term projection.  But, there has been sufficient positive news to state that a real turnaround may be in the works. 

Hale Stewart is a former bond broker who has been writing about economics and financial markets since 2006 on the Bonddad Blog.  He is also a tax attorney with a domestic and international practice while also forming and managing captive insurance companies for US companies.   You can follow him on twitter at:@captivelawyer  

 

 

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