Eurozone Economy Resilient As China Hits 30-Year Low In 2019

Economic growth in the Eurozone remained resilient towards the end of the year despite the expectations of a slowdown from the Brexit uncertainty and trade tensions.

GDP expanded by 0.2 percent in Q3’2019, taking the expected growth to 1.1 percent in 2019, weaker than the 1.8 percent growth seen in 2018.

This modest growth was underpinned by healthy consumer spending despite the significant drop in industrial production.

The European Central Bank (ECB) maintained the base lending rate at 0.0 percent and the rates on the marginal lending facility at 0.25 percent.

The ECB also reduced its deposit rates by 10 bps to (0.5 percent) from (0.4 percent), and introduced a fresh stimulus package by restarting its bond purchases of EUR 20.0 bn a month from November.

The Stoxx 600 index gained by 24.6 percent in 2019. This performance was mainly supported by late inflows that came in after the General Election in the UK which aided in clearing uncertainties around the Brexit.

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Also, easing trade tensions as a result of the proposed phase-one trade deal between the US and China. The P/E ratio currently at 15.0x, is 23.1 percent below the historical average of 19.5x, indicating markets are currently trading at relatively cheaper valuations.

China

China’s economic growth slowed down to a near 30-year low of 6.0% in Q3’2019, lower than the expected GDP growth for 2019, 6.2 percent (according to the IMF), although still within the government’s target of 6.0 – 6.5 percent.

This performance is partly attributable to the effects of the trade-conflicts with the US and poor volumes in-terms of industrial production.

The Shanghai Composite index gained 25.2 percent during the year 2019. The gains were mainly supported by expectations of a positive outcome following the resumption of trade talks with the United States, coupled with increased capital injection by the government, which improved investor confidence.

The P/E ratio currently at 14.7x, is 0.2% above the historical average of 14.5x, indicating that the market is currently trading at slightly more expensive valuations.

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