Despite the recent bump in market volatility around the globe, good news continues to come from eurozone economies. In particular, the robust recovery from formerly struggling France has bolstered a surge in eurozone economic growth, which outpaced that of the U.S. last year. The European Union Statistics Agency says gross domestic product ( ) produced by the eurozone’s 19-member countries reached 2.5% in 2017, the fastest growth rate since 2007.
In France, where President Emmanuel Macron has begun to obviate red tape, cut taxes and reach out to French businesses in an attempt to erase the country’s reputation as a nation that discourages business innovation, the pro-growth policies appear to be working. The latest data show its GDP accelerated at a 1.9% pace in 2017. That represents France’s strongest year since 2011, signaling a possible end to half a decade of economic stasis that has kept unemployment close to 10% and held back the broader European recovery.
Even Italy, the eurozone’s third-largest economy and long an economic laggard, is showing signs of recovery with the International Monetary Fund recently forecasting a pickup in growth to 1.6% in 2017 from 0.9% in 2016.
Business surveys are suggesting that eurozone economies all over have entered 2018 on a strong note, and plans for further economic reform and innovation continue apace. France is seeking additional overhauls to remove barriers to growth for small companies and to help them compete in export markets. Changes to the country’s onerous labor code also are allowing greater flexibility in hiring and firing, with Bruno Le Maire, the country’s finance minister, indicating that “this is only the beginning” in France’s efforts to promote growth and increase foreign investment.
From our standpoint, what’s good for Europe has strong potential to be good for investors in European equities—especially when invested in companies whose stock valuations and ability to capitalize in the European economic revival are well aligned.