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A Summertime Eurozone Progress Report

Did you hear? The financial media seems to be finally recognizing the eurozone is doing all right!

The 19-member bloc is chugging along and doing better than some of its developed economy counterparts. This isn't stunning, since the eurozone has grown 17 straight quarters and that "recovery" moniker has been officially wrong since 2015.

While growth hasn't been even -- some countries officially entered "expansion" territory more recently than others -- it is increasingly broad-based. But the growing awareness is a sign sentiment is improving, which we think should help fuel eurozone stocks.

To highlight how far the eurozone has come, consider how the just-released July purchasing managers' indexes (PMI) figures compare to those from March 2013: the last PMI report before the eurozone began its 17-quarter growth streak.

Exhibit 1: IHS Markit's Eurozone PMIs, March 2013 vs. July 2017

 

Source: IHS Markit, FactSet, Fisher Investments Research. IHS Markit composite eurozone PMI, Final Services PMI for Germany, France, Italy and Spain and Final Manufacturing PMI for Germany, France, Italy and Spain for March 2013 and July 2017.

Granted, PMIs aren't perfect econometrics (no stat is). They are monthly surveys showing a snapshot of a country's private sector. Readings over 50 mean more responding businesses grew than contracted that month; readings below 50 suggest more shrank. While PMIs don't show the magnitude of the growth/contraction, they give a quick and rough sense of how different sectors of the economy are doing.

In March 2013, at the depth of the eurozone's recession, most businesses across the eurozone's four big economies were struggling. If the numbers didn't provide compelling evidence, the media hammered the point home. With questions about Cyprus's future in the eurozone percolating, folks bemoaned Europe's "non-stop economic decline" and that any optimistic recovery projections were "beyond the realm of likely probabilities."

Fast forward four years, and some of those same analysts are wondering when the ECB will pull its "accommodative" monetary policy. While the ECB's "help" was always overstated in our view--it was unnecessary and likely dampened growth a bit--this change in tone does suggest warming sentiment overall. Heck, the eurozone's expansion is even garnering envy from its developed world neighbors!

Because of the eurozone's earlier struggles in the global expansion and bull market, the gap between sentiment and reality is much wider relative to other places. This is one of our primary reasons for our bullishness toward Europe and why we expect eurozone stocks to do well for the rest of the year.

Fisher Investments is an independent, fee-only investment adviser serving investors globally. To learn more about Fisher Investments, please visit www.fisherinvestments.com.

The content contained in this article represents only the opinions and viewpoints of the author. It should not be regarded as personalized financial advice and no assurances are made the firm will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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