Growth: expectations revised downwards, if only in Europe


It is unfortunately likely that continental Europe’s economic growth will once again be much lower than that of other economies in 2021. But that does not necessarily mean disaster for financial markets.

Financial markets have currently established a rather favorable economic outlook for the United States. This relatively optimistic economic picture is reflected in all kinds of measures. For example, the slope of the yield curve is a popular indicator of nominal growth forecasts. The difference between 2-year and 10-year US government bond yields is currently as high as it was most recently in 2015. Inflation expectations are on the rise, as are expectations for inflation. results for the stock market. Commodity prices also reflect the anticipation of a strong economic recovery. For the United States, economists are raising their growth forecasts for 2021, as our “chart of the week” shows. For Europe, on the other hand, the picture is not so encouraging. After a phase of almost euphoric expectations for 2021 towards the end of last year, the forecasts are again revised downwards.

Several causes may explain this divergence: A first probable reason for the divergence in growth forecasts is linked to the evolution of the pandemic. When it comes to vaccination against Covid-19, the United States has far surpassed most European countries. Another reason is tax policy: With Democrats at the top of the political agenda in Washington, tax policy has been even more expansive than expected after last year’s presidential elections. While the president had just signed the 1.9 trillion dollar stimulus package, discussions on another infrastructure investment program, this time for $ 3 trillion, had already started. In Europe, on the other hand, the implementation of the EU reconstruction fund is extremely slow. The latest ruling by the German Federal Constitutional Court could lead to further delays.

So what can all of this mean for the markets in the future? Well, in terms of economic growth, it is unfortunately likely that continental Europe will once again lag, far behind other economies like the United States or some emerging countries, especially in Asia, in this recovery. . However, this does not necessarily mean that European stock markets are on the verge of collapse. For large European companies, the global economy is ultimately more important than the economic outlook in their respective home countries.