According to Higgins, while stagnating growth and high unemployment have been defining characteristics of the eurozone for the past few years, “concerted action by the European Central Bank (ECB) should help Europe on the path to recovery.
As reasons for this belief, Higgins points to the impact of the Targeted Long Term Refinancing Operations that ECB officials say will kick-start lending and prevent the onset of a fresh credit crunch by reducing banks’ funding costs. As well as the fact that the ECB has floated the prospect of outright quantitative easing.
“Recent data have also dispelled some of the gloom and given reason for optimism that Europe is moving on from crisis to recovery. Industrial production in Europe rose 0.6% month-on-month in October compared to a drop of 1.4% month-on-month previously. Also Germany’s ZEW survey of investor confidence beat expectations following a poor October. The index rose to 11.5 from 3.6 previously (only utility companies became more pessimistic),” Higgins said.
But, he added: “Europe’s main challenge remains a lack of fiscal support. But if growth continues to slow in Germany, it will be easier to justify a relaxation of austerity measures. Still, given structural constraints to fiscal stimulus, Europe will be reliant on QE and a weaker euro as the main drivers.”