As was the case during 2016, financial markets have been keeping a close watch on forthcoming elections and referendums, although their impact may effectively be overestimated. After Spain, Italy and Austria, it was Holland’s turn to reject the temptation of political and economic extremism. The liberal party managed to win the largest number of seats, putting it in a position to form a coalition government. Although the markets appeared relatively unconcerned by the Dutch election, the vote nonetheless demonstrated that anti-European movements are far from representing a majority. The European Union is uncontestably afflicted by inefficiencies, as the UK voters reminded us during the Brexit referendum, and the eurozone also suffers incoherencies as a monetary area in which intrinsic levels of economic flexibility diverge. However, economic indicators within the eurozone are generally improving, including confidence surveys, unemployment data, new loans and resurgent inflation, while corporate earnings forecasts are being upgraded slightly. Over the past three years, eurozone GDP has trended above its theoretical long term potential of 1%.
Having become used to weathering repeated anxiety-inducing systemic crises since 2011, the eurozone may now once again be perceived as an attractive region for investing...provided that the last political hurdle is cleared without too much difficulty. The French presidential election thus now appears to be the last focus point for financial market trends. At this stage, the opinion polls, for what they are worth, are not indicating a strong probability of an extremist party winning the election, and even less chance of securing a working parliamentary majority following the legislative elections in June. Growth in the European and global economies remains on track and monetary conditions are normalising in the US.
Despite the immense populist and media pressure weighing on democracies, it is still too early to write an epitaph for the eurozone and bury global capitalism.
Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in March 17th, 2017.
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