Eurozone economy still strong for the Moment

In June, the financial markets remained volatile as Greece sank deeper into crisis and approached a first repayment default on IMF debt. Thus the predominant news flow surrounding Greece has sometimes unfairly reflected the current economic situation, which is still in good shape.

In fact, the PMIs in the US and the Eurozone are still clearly above 50. After several months of increase, Eurozone PMI is roughly stable (52.2) but still in expansion territory. As the single currency area reported a stronger growth rate among developed economies in Q1, this normalization seems, well, normal, especially as the Greek situation may now be slightly weighing on confidence. Nonetheless, the Economic Surprises Index rebounded in June, reverting to neutral territory.

On the other side of the Atlantic, it is the opposite: after a weak start to the year, the US economy is now showing strong signs of improvement. With the Economic Surprises Index confirming the rebound, which dates back to May, momentum is clearly improving. Advanced indicators like the US PMI manufacturing (53.6) confirmed last month it was stronger than the Eurozone one.

The emerging economies are still suffering: their Economic Surprises Index has maintained its deceleration trend below zero while China’s PMI manufacturing is only slightly above 50.

Globally, provided Greece does not strongly impact the economy recovery we shall continue to expect better economic momentum in the US in H2 2015 and a firmer economic recovery in the Eurozone. This would support risky assets.

Read the full Cross Asset Allocation Investment Strategy - July 2015