European Economy Showing True Strength

June 2, 2015Europe/Middle Eastby EW News Desk Team

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Europe's economic recovery is gaining momentum, leading to a more positive outlook for the region's long-term financial prospects. According to Barron's, gross domestic product (GDP) in the European Union should grow by 1.8 percent in 2015 and 2.1 percent in 2016, and each member state of the EU could see average growth around 1.5 percent. While growth will be slow, a combination of the European Central Bank's loose monetary policies, a weak Euro, and low energy prices have helped kick start the EU economic recovery.

Differing Approaches Lead to Different Individual Results

Ireland and Spain, both deeply troubled at one point during the Global Recession, have both done particularly well with recovery. Ireland, whose economy was so damaged that it required a bail out by international creditors, has rebounded into a long growth spell. Ireland's economy should expand by 3.6 percent in 2015 and 3.5 percent in 2016. Spain, on the other hand, has experienced drastic reductions in unemployment, but joblessness remains rampant at an estimated 23.8 percent. Still, economists predict the Spanish GDP will increase by 2.8 percent in 2015 and 2.6 percent in 2016.

At the other end of the spectrum, France and Italy, which have stubbornly delayed in enacting financial reforms, have paid the price. GDP in France, Europe's second largest economy, should grow by just 1.1 percent in 2015 and 1.7 percent in 2016. Italy will only grow by 0.6 percent in 2015 and 1.4 percent in 2016.

Germany, which overhauled its under-performing economic system in the early 2000s, managed to actually come through the Eurozone financial crisis ahead of the game. Powered by overseas demand for German industrial goods, Europe's largest economy should expand by 1.9 percent in 2015 and 2 percent in 2016.

Overall EU Growth Powerful

Although individual countries have varying degrees of success emerging from the Global Recession, the EU as a whole has shown signs of blossoming. Investors have driven up European stocks, with the Stoxx Europe 600 index up by about 16 percent so far in 2015. Germany's benchmark DAX index demonstrates similar results.

Some Dark Spots Linger

While everything as a whole is looking up, a few lagging issues remain. The Euro, for instance, has moved rapidly towards parity with the US Dollar, which has, itself, begun to climb in value. A weaker Euro would benefit the EU by making exports to non-EU nations more affordable and competitive.

Similarly, Greece continues to teeter on financial collapse, flirting with insolvency and the inability to repay bailout loans. Some indications seem to point to an extension of further bailout funds to prop up the Greek economy, but Greece must make significant improvements to its fiscal policies in order to achieve meaningful recovery and sustained economic growth.