Prominent figures in the investment sector believe that the disappointing gross domestic product (GDP) growth rates in the second quarter of 2019 across the Eurozone suggest that the 19-country bloc could be facing a future recession.
In Q2 2019, GDP growth slowed to 0.2 percent, a significant drop from the 0.4 percent growth in the opening quarter of the year. This has been attributed to significant long-term factors both within the Eurozone bloc and also external to it.
In a statement which colourfully concluded with the line, “All signs point to a recession, and time is running out to successfully change course”, Phil Smeaton, chief investment officer at Sanlam UK, believed that figures suggest that the Eurozone remains in a fragile state with little possibility of rectifying the situation in the short-term.
In particular, he cited the poor economic performance of Germany and Italy, two of its largest economies as especially worrying. He noted that Germany’s economy was shrinking, while Italy had systematic political and industrial deficiencies that continued to stifle growth.
He also pointed to global and external headwinds which continued to affect the investment climate such as Brexit, which contributed substantial weight to the argument that there was a possible recession on the way.
Developing his argument, he added: “Being an exporting powerhouse, the EU is feeling the impact of the ongoing trade wars and a global slowdown more than most. And the continued uncertainty of the bloc’s relationship with the UK is acting as a further drag on performance, confidence, and business investment. All signs point to a recession, and time is running out to successfully change course.”
Commenting on the Eurozone’s meagre GDP growth for Q2, Chris Towner, director at JCRA, noted that the poor performance was driven by factors affecting integral members of the bloc and also established additional external headwinds such as the burgeoning trade war between the US and China which continued to effect the European investment landscape.
Mr Towner said: “If you dig deeper into the data it is clear that the slowing is coming from the core of the EU with Germany posting a contraction of 0.1 percent in the second quarter. France on the other hand continues to grow at 0.3 percent which perhaps points to how sensitive the German manufacturing sector is to the trade tariffs dispute between US and China.”
He also shared the view of Mr Smeaton that there was a possibility of negative growth rates and believed that the currency as well as the economic area was going through a seminal period.
He said: “The Euro weakened marginally as we go into a big week for the EU with the ECB deciding on whether to loosen policy further. Negative rates in the EU have become the norm and the question as we go into next week is how far can they go? A further cut of 10bps to the deposit rate will bring it down to -0.5%. This is expected but will it be enough? Anything more dramatic will send the Euro lower.”
This does not, however, mean all funds investing in European equities are struggling to provide opportunities to its investors. Fundeye recently profiled Ben Ritchie’s European Equity Fund at Aberdeen Standard, which is still consistently beating its benchmark.
