What's going on?

According to a slew of economic data released this week, the eurozone�s economy is performing much better than its American counterpart! (tweet this)

What does this mean?

On Wednesday, data showed that the eurozone�s economy grew at 0.5% in the first quarter, which is equivalent to an annualized rate of about 2%. That�s far faster than the 0.7% annualized rate that the US economy grew in the first quarter!


The strength in Europe appears to have continued in April, with an influential survey of business activity suggesting growth hit a six-year high � which, if true, would be an acceleration on top of the relatively strong first quarter growth.

Why should I care?

For markets: Pressure is increasing on the European Central Bank (ECB) to be less supportive of the economy.

For years, the eurozone�s economic growth lagged both the UK and US. In an attempt to boost growth, the ECB enacted historically extreme actions to lower interest rates and encourage borrowing (and thus spending). So far, the ECB has advocated remaining patient before reversing any of its supportive policies. But if the economy continues to improve, that caution will be less warranted. If the ECB reverses some of its policies, it would likely lead to higher interest rates within the eurozone, which are typically good for the euro, bad for bonds and have a mixed impact on stocks (more on the possible implications).

The bigger picture: Political risk in Europe appears to be receding.

Last year, investors routinely expressed concern about political risks within Europe, most notably from anti-establishment politicians that want their countries to stop using the euro. But, France appears likely to reject the anti-establishment candidate in the final round of its presidential election on Sunday and the Netherlands has already done something similar. An Italian election on the horizon remains a risk… but the sailing looks a lot smoother for investors than it did just a few months ago.