Even as Catalonia serves a reminder that political risks remain, the eurozone’s year of living dangerously is turning out well for the economy.
On track for the strongest expansion in a decade and with consumer and business confidence at the highest since before the financial crisis, the currency bloc is emerging as fertile ground for dealmakers, investors and executives.
“The wind is well and truly back in the sails of Europe,” said Simon Wells, chief European economist at HSBC Holdings.
“The question for investors I suppose is: Can this continue?”
The upbeat economic outcome for 2017 wasn’t at all certain at the start of the year, when the shockwaves from votes for Brexit and Donald Trump were prompting warnings that the eurozone would be the next to witness a populist surge that could splinter the eurozone.
The eurozone purchasing managers survey confirmed that private-sector manufacturing activity accelerated last month, and showed factories scrambling to add staff.
In Ireland, the Investec Purchasing Managers’ Index showed that manufacturing continued to expand in September and most of the people responsible for purchasing decisions predicting further growth in the year ahead.
“Given the strengthening economic backdrop both at home and abroad, we concur with those who are positive on the outlook,” said the bank’s chief economist Philip O’Sullivan.
Catalonia’s illegal independence referendum on Sunday, which could see separatists make a unilateral declaration this week to split the region from Spain, showed that the risks are far from over.
Yet they have largely abated. Dutch populists were defeated in elections. German chancellor Angela Merkel has to deal with a rise in support for the far right but she’s still readying for a fourth term in power. Newly elected French president Emmanuel Macron is pushing a reform programme, and fellow European Union leaders are planning deeper integration.
“The period of confusion may cause a dent in Spanish economic sentiment,” said Holger Schmieding, chief economist at Berenberg in London. “For the eurozone as a whole, the possible Catalan impact will probably be too small to make a noticeable difference,” he said.
The ECB forecasts an economic expansion of 2.2% this year, enough to persuade president Mario Draghi to consider slowing the institution’s extraordinary monetary stimulus.
The Governing Council is slated to take that decision by next month. Investors have responded by pushing the Stoxx Europe 600 up more than 7% this year, headed for the strongest gain since 2013. European takeovers have jumped 41% to €445bn, offsetting a slowdown in US deals. Consumer transactions such as French lensmaker Essilor International’s purchase of Luxottica Group, the producer of Ray-Ban sunglasses are leading the increase.
“Confidence is rising,” Marco Settembri, head of Nestle’s European business, said last week. Politics could still get in the way, and on a larger scale than Catalonia.
Italians will vote to chose their parliament next year, with the eurosceptic Five Star Movement set to make a strong showing. And Ms Merkel may have won the German election but her party still had its lowest share of the vote since 1949.
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