Positive economic surprises are possible in the eurozone

ON EUROPE

Recession risk has risen considerably in the eurozone. The core countries struggle to outweigh the weaknesses of the periphery. Also, the weaknesses in the financial sector are likely to start to impact on the real economy of the eurozone.

We have already seen tighter credit supply conditions as revealed in the ECB lending survey and also widening credit and banking spreads have caused further concern. In global terms, GDP growth would be more threatened if a hard landing scenario materialised for the Chinese economy, or if growth stopped in the US. GDP growth in China is likely to stay at around 7%. Recent Chinese retail sales also appear to have held up well. As investors in European equities, this is important, as a reasonable part of the earnings growth of some of our investment is derived in emerging markets. The...