At T. Rowe Price, we believe the European economy is enjoying strong fundamentals. Growth should continue in 2018, providing support for both equity and bond markets. But given lingering political risks, potentially tighter monetary policy and elevated markets, there could be periods of distress. We believe investors will need to focus on identifying strong companies in sectors that can benefit from growth and endure any potential disruption.
key points
- We expect the European economic recovery to continue in 2018, supporting bond and equity markets.
- However, lingering political risks, the prospect of European Central Bank tightening and stretched corporate bond valuations suggest possible volatility.
- In equities, we see potential opportunities in high-quality, growth-generating companies that are well placed to benefit from Europe's economic recovery.
- In bonds, we seek issuers that look better able to hold up in shaky markets.
Europe shakes off political shocks…
Despite Brexit, growing populist forces in a number of countries and the unofficial Catalan referendum, the eurozone grew at a healthy rate throughout the year, seemingly impervious to negative geopolitical events. The big question for 2018 is whether this resilience will continue. At a fundamental level, the prospects look good: Europe is at an earlier stage in the credit cycle than the US, corporate earnings are strong, and the recovery appears both broad and sustainable. Read our 2018 Global Market Outlook
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