Eurozone: Five reasons to change the tune [Quarterly Perspectives]Contributor Global Markets Insights Strategy Team
The level of market and media pessimism toward the eurozone increased over the latter half of 2014, as economic momentum stuttered and fears grew of another recession. Meanwhile the dramatic fall in the global price for crude oil further weighed on inflation expectations and heightened fears of outright deflation. These factors all pose important risks to the eurozone economy in 2015, but we see five reasons to believe that the tune for investors in European markets in 2015 might be more upbeat than the one that has been playing in the latter part of 2014.
The eurozone was subject to three years of government belt tightening between 2010 and 2013 as politicians at the national and supranational level imposed a regime of spending cuts to tackle rising deficits and debt levels. Fiscal policy is not going to be very stimulative in the next few years, but the International Monetary Fund estimates that in the 2013 to 2016 period, the level of fiscal tightening in the eurozone will be a fraction of what it was in the past.
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