Hopes for Economic Growth Deflate in Europe | American Funds

  • Forms

2015 Outlook

Global Growth
Hopes for Economic Growth Deflate in Europe

But exporters are well-positioned to import revenue and profits

“I think the valuations in Europe are reasonably attractive. On top of that, a weak euro is a tailwind for exporters. Overseas revenue for European businesses is nearly two-thirds of the total revenue in Europe, so a depreciating euro should support earnings and add to profitability.”

– Mark Denning

Mark E. Denning Portfolio Manager Los Angeles office 34 years of experience (as of 12/31/16)

Growth is expected to be weak and uneven...

Projected annual percent change in GDP, 2015

Source: IMF. As of October 2014.

...but companies may benefit from growth elsewhere

MSCI Europe Index by revenue

Source: MSCI. As of December 31, 2013.

Economic conditions in the euro area remain challenging and Ukraine/Russia hostilities continue to pose a major risk to the region. Output and investment remain anemic and growth is expected to be weak and uneven across countries.

The macroeconomic view on Europe is very different from a view of the markets. This is because companies in Europe are largely export-oriented, so their fortunes are tied as much to the U.S. and China as they are to Europe.

Export-oriented businesses stand to benefit from currency declines that should accompany more accommodative monetary policy. A weak currency makes exporters more competitive and boosts the value of the revenue these companies generate overseas.

Many European businesses also offer attractive dividend yields, meaning that investors can get paid to wait for an economic recovery to materialize and company earnings to improve.

Valuations in Japan Have Rarely Looked This Compelling


Related Literature

Related Insights

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing. 

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not to be comprehensive or to provide advice.