Europe's stealth comeback

Mar 9, 2017 / By Jean Boivin

We dig into Europe’s recovery and find the reflationary dynamic in its early stages. Inflation expectations have turned up, even if wage growth and underlying inflation are subdued.

Europe’s sluggish recovery after the double-whammy from the global financial and sovereign debt crises has made it easy for investors to dismiss the region’s prospects. Yet absent a political or external shock, we believe the eurozone’s improving economic dynamics have longer to play out.


  • We believe the eurozone can gain more momentum in a reflationary world. France has joined Germany and Spain as a growth engine. Our analysis points to pent-up demand for greater investments, perhaps as revived animal spirits give companies confidence to take on new projects.
  • We find that markets appear too pessimistic on Europe's prospects – a big reason why we are positive on risk assets in the region. Inflation expectations have finally perked up but the European Central Bank is poised to stay patient on policy to help cement this shift.


Room for improvement
Europe big-four GPS and market-implied GDP, 2010-2017

View the BlackRock Macro GPS interactive data visual.

Sources: BlackRock Investment Institute, Eurostat, March 2017.
Notes: The chart shows the GDP-weighted average GPS for the eurozone's four biggest economies: Germany, France, Italy and Spain. The market-implied rate of eurozone GDP is based on a statistical model that analyses co-movements in eurozone equity prices and real bond yields: Any simultaneous rise in real yields and equities is interpreted as a positive growth expectation. That is converted into a reading for 12-month forward GDP expectations.

Jean Boivin
Head of Economic and Market Research
Jean Boivin, PhD, Managing Director, is Head of Economic and Markets Research at the Blackrock Investment Institute.
Isabelle Mateos y Lago
Chief Multi-Asset Strategist
BlackRock’s Pan-European Equity portfolios