Market views - EUROPE

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EUROPE

March 2010

The economy of Europe has stabilized and has edged out of recession.

Public finances are under severe pressure and fiscal drag will continue to weigh on economic growth. Several countries face intense scrutiny and this will have a negative effect for some time. Europe is likely to lag global growth trends. Growth prospects are better in core markets with strong export sectors such as Germany, France Switzerland and Italy, but remain challenged in peripheral economies like Ireland, Greece, Portugal and Spain.

The market has entered a consolidation phase.

Valuations, adjusted for mid cycle earnings remain attractive, but with the economy, showing only modest growth prospects much of the short-term recovery potential is priced into the market. The process of unwinding the accommodative interest rates and fiscal stimulus packages could derail the recovery so the market needs a period to assess “where we go from here”. Further progress is reliant upon a continued benign policy environment and signs of continued revival in the economic outlook. At a corporate level, there are signs that activity is reviving and as this process continues, the market will respond positively.

Page last updated April, 2010 ID1720