A turnaround in eurozone politics

By BlackRock

Key points

  1. We see a steadier eurozone political environment helping support growth and reform momentum – and bolstering the case for the region’s equities.
  2. Global stocks hit new highs, government bond yields rose and the US dollar rallied. Hurricane Irma’s impact was less severe than feared.
  3. The Federal Reserve this week is expected to announce its plan to start gradually winding down its balance sheet in October.

A turnaround in eurozone politics

Eurozone politics have entered a period of calm. Long-term challenges such as slow growth, integration of immigrants and decreased competitiveness remain. Yet a steadier political backdrop supports sustained, above-trend economic growth and some reform – and bolsters the case for investing in the region’s equities, in our view.

Chart of the week
Eurozone growth outlook and support for the euro,2010-2017

Chart of the week

Sources: BlackRock Investment Institute and European Commission, September 2017.
Notes: The eurozone growth outlook is represented by the BlackRock GPS. It shows where the 12-month consensus GDP forecast may stand in three months' time for a GDP-weighted average of Germany, France, Italy and Spain. Support for the euro is represented by the percentage of respondents within the eurozone in favor of the euro, based on the European Commission's Eurobarometer survey from May 2017. Draghi’s “Whatever it takes” speech refers to comments from European Central Bank President Mario Draghi that the central bank would do “whatever it takes to preserve the euro” in July 2012. Brexit vote refers to the UK referendum on the country's European Union membership on June 23, 2016. Emmanuel Macron won the French presidential election on May 7, 2017.

Confidence about the future is on the rise in Europe. Popular support for the euro single currency has risen to its highest since 2004, as the blue line in the chart shows. Our BlackRock GPS (green line) shows consensus forecasts for economic growth in Germany, France, Italy and Spain – the four largest eurozone economies – are near their 2015 peak.

Anti-Europe threat fades

The potential for extremist politics to become mainstream has faded in recent months, we believe, and prospects for reforms look brighter than they have in years. In Italy, the likelihood of an anti-euro government has dwindled, as no major party is pushing to exit the eurozone. In France, President Emmanuel Macron is expected to implement his largely pro-growth agenda with the help of a solid majority in parliament. His labour market reforms are off to a good start, with a batch of reforms expected to be enacted shortly without major protests. Angela Merkel was widely expected to win a fourth term as German Chancellor on Sunday. The key unknown is whether her coalition partner will be the pro-European Social Democrats (SPD) or the pro-business Free Democratic Party (FDP), which has a more reluctant stance on European integration. Overall, there is a pro-reform wind blowing in Brussels and key European capitals.

The risks? Economic growth dampens the urgency to reform, and differing views on which reforms are needed are too large to overcome. Italian elections in the spring are likely to cause political and financial turbulence along the way, and eventually produce a hung parliament. We see this limiting the scope for the reforms and fiscal adjustment that Italy needs to keep its large debt sustainable.

Bottom line: A largely benign European political backdrop looks to be setting the stage for a favourable investment environment in the near term. This adds to sustained above-trend growth and ongoing monetary accommodation. A much stronger euro is another risk. This would be a threat to corporate earnings and export growth, and could complicate the European Central Bank’s efforts to reach its inflation target. We prefer European equities to credit in this environment.


  • Global stocks hit new highs, government bond yields rose and the dollar rallied. Hurricane Irma caused considerable devastation but the damage was less severe than many had feared.
  • US core inflation picked up in August. Hawkish comments from the Bank of England reflect six-year-high inflation and the lowest unemployment rate since 1975. The British pound rose to a one-year high against the US dollar.
  • Base metal prices fell to multi-week lows, pressured by a stronger dollar. Oil rose on the improved demand outlook from the International Energy Agency and the Organization of the Petroleum Exporting Countries (OPEC). Lower OPEC output in August also helped.


Date: Event
Sept. 19-20 Federal Open Market Committee (FOMC) meeting
Sept. 21 Eurozone flash consumer confidence indicator; Bank of Japan monetary policy meeting
Sept. 22 U.S., eurozone, Germany and France composite purchasing managers’ index (PMI)
Sept. 24 German federal election

The Fed is expected to announce its plan to start gradually winding down its balance sheet in October. Investors do not anticipate a rate increase at this meeting, but see the odds of a December rate increase rise to roughly 50%, from 37% at the end of August.

Managing Director, is Global Chief Investment Strategist for BlackRock
Richard Turnill is Global Chief Investment Strategist for BlackRock. He was previously Chief Investment Strategist for BlackRock’s Fixed Income and active ...

Op zoek naar meer onderzoek en insights?


This material is for distribution to Professional Clients (as defined by the FCA Rules) and should not be relied upon by any other persons.

Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: 020 7743 3000. Registered in England No. 2020394. For your protection telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited.

Sources: Bloomberg unless otherwise specified.

Past performance is not a guide to future performance. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested. Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.

Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.

The opinions expressed in this paper may change as subsequent conditions vary. The information and opinions contained in this paper are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents.

This paper may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this paper is at the sole discretion of the reader.

This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.

© 2017 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, iSHARES, BUILD ON BLACKROCK, SO WHAT DO I DO WITH MY MONEY and the stylized i logo are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.