Financial markets/economy

Optimistic markets for the US, more complicated situation for Europe

Posted by MoneyController on 31.01.2024

Estimates and figures for US GDP growth have been released, as well as data for Germany, France, Italy and Spain in Europe. What is the market's outlook on these results?

The robustness of the US economy

US GDP grew by 2.5% in 2023, exceeding expectations. The robustness of the US economy is one of the reasons why the International Monetary Fund (IMF) has revised its growth forecast upwards from +2.9% to +3.1% (the other reasons being the dynamism of some emerging economies and the fiscal support measures in China). As a result, the IMF believes that the risk of a hard landing in the Federal Reserve's monetary policy has diminished. The latest CPI (Consumer Price Index) figures show a 0.3% rise in monthly inflation.

Optimism on Wall Street

The US stock market reacted very positively to this series of milestones in the US economy, with the S&P 500 and the Dow Jones breaking their all-time records. As Walter Riolfi writes in the Corriere della Sera, the majority of analysts and market strategists, as well as asset managers, believe that Wall Street's optimism is justified: most of their forecasts rule out a recession and consider it likely that the US economy will grow by more than 1% in 2024. The growth target for the S&P 500 is also considered to be on the upside and, as noted in Riolfi's article, Goldman Sachs' target of 5,100 points already seems very close: the S&P 500 is now above 4,900 points.

European economic data: only Spain surprised on the upside

And Europe? From an economic point of view, the situation is much less positive than in the US. According to Eurostat, growth in the eurozone was 0% in the fourth quarter. According to the German Federal Statistical Office, the German economy shrank by 0.3% in 2023. According to the Institut national de la statistique et des études économiques, France (which remained at +0% in Q4) grew by 0.9% in 2023. In Italy, Istat's preliminary estimates point to growth of 0.2% in Q4, which translates into growth of 0.7% over the whole of 2023. Spain's GDP, on the other hand, grew by 2%, the best result among the major eurozone countries.

Market optimism and the spectre of recession

At this point, it might be expected that growth estimates for European markets would be well below those for US markets. And yet, as Riolfi explains, it is interesting to note that even here there is a degree of optimism among market participants and analysts: Goldman Sachs, for example, expects the Stoxx index to grow by 5%, and most European asset managers are also expecting gains of 5% (or more), according to a survey by Bank of America. However, not everyone shares this optimism, which, as Riolfi rightly points out, is based almost exclusively on monetary easing, at least in Europe: economists at firms such as Abrdn and T. Rowe even expect a recession in Europe in 2024, according to the Corriere article.

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