Austerity keeping

Growth at Bay!

Three years after the realisation that certain countries in the European Union had fiscal balances that were unsustainable, a lack of economic growth has caused many to question whether austerity was theright medicine to cure the ills of the region’s most indebted nations. While reducing spending is an important step towards fiscal balance, European authorities are beginning to acknowledge that it may be ineffective to do so at the expense of economic growth.

In 2010 the Troika, of the European Commission, ECB and the IMF, provided funding to help certain countries including Spain & Italy to avoid default. This assistance came with the stipulation that governments would impose strict austerity measures in an effort to curb government spending. Three years on, the European public has expressed its discontent with austerity, with protests staged across the region, and policymakers are recognising that austerity alone is unlikely to lead Europe out of recession.

While it will take time for Europe to emerge from recession, the European equity market should continue to provide attractive investment opportunities. The ECB’s monetary policy is likely to remain accommodative, and many European companies have global revenue streams, allowing them to continue generating revenue despite weak domestic growth. European equities are attractively valued and, on average, pay higher dividends than other developed companies, particularly in the US.