Audio Length: 00:54:08
Last week’s “Behind the Markets” podcast focused on Europe. The first segment of the discussion was with Frederik Ducrozet, senior economist for Pictet Wealth Management, which was followed by a segment with Tamim Bayoumi, deputy director in the Strategy, Policy and Review Department of the International Monetary Fund and author of a great new book called Unfinished Business: The Unexplored Causes of the Financial Crisis and the Lessons Yet to be Learned.
Our conversation included an outlook for European equity markets and the economy and closed with a look back at the financial crisis for Europe and the current state of the European banking system as well as the euro area and monetary union itself.
Ducrozet Bullish on European Laggards
Ducrozet and his firm Pictet Wealth have a bullish bias to European equities, wanting to position toward more cyclical parts of European markets, including cyclical sectors, banks and small-cap stocks.
Ducrozet does not see signs of a slowdown in the European economic story and calls 2018 the year of the laggards—so countries such as France and Italy could outperform Germany from an economic growth perspective.
One of the risks of 2018 is Italy’s politics. From an economic growth perspective, Italy has lagged, and there is an election on March 4. Ducrozet does not believe the populist and more euro-skeptic Five Star Movement wins the election and forms a government, but that is a risk for the euro area in 2018.
Ducrozet sees the European economy getting stronger so that it is more resilient to political shocks. Further, following the Trump election and Brexit, Ducrozet sees it becoming harder for any of these political movements in Europe to push for an exit of the euro area. Particularly in Italy, he even sees the far-right parties walking back the idea of leaving the euro area.
Politics a Driver of Euro in 2017, Interest Rates in 2018?
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