Fundamentals still favour eurozone equities, Zurich Insurance tells IGTV

In an interview with IGTV’s Victoria Scholar, chief market strategist at Zurich Insurance Guy Miller said he is surprised by the sheer weakness in eurozone data in recent months, with stabilisation taking longer than expected.

Nonetheless he is optimistic about a pick-up in the eurozone economy and argues that the fundamentals are still in favour of equities in the months ahead.

With regards to monetary policy, he believes that ECB rates will remain on hold for a ‘very long time’ and the euro is looking ‘close to fair value,’ he added.

In terms of the biggest risks to eurozone stability, Miller argued that Italy remains the ‘Achilles heel’ of Europe.

Italy: the new sick man of Europe

On Friday, the International Monetary Fund (IMF) slashed Italy’s growth outlook for 2019. In an update to its World Economic Outlook, IMF economists said that the eurozone’s third largest economy will grow 0.6% in 2019, down from an October assessment of 1%.

IMF also labelled Italy as a threat and a risk for the global economy.

Of the big four eurozone economies, Italy is increasingly looking like the new sick man of Europe, with the data showing that the country fell into a technical recession in the final quarter of 2018.

Italy’s GDP fell by 0.2% in Q4 compared with the previous quarter after the country’s economy contracted by 0.1% - exceeding economic forecasts which predicted a decline of just 0.1%.

With fears rising of a global economic slowdown and slowing economies across the eurozone, the situation in Italy is likely to get worse, with the country already struggling to deal with its banking crisis and the amount of bad debt on their balance sheets.

Eurozone growth slows fuelling fears of a global slowdown

The eurozone economy grew by just 0.2% during the fourth quarter (Q4) 2018, representing the lowest pace of growth the 19-country bloc has seen in the last four years, according to data compiled by the European statistics organisation Eurostat in January.

Meanwhile, GDP rose by just 0.3% across the EU 28 during Q4 last year, compared with the previous quarter. In the third quarter of 2018, GDP had also grown by 0.2% in the euro area and by 0.3% in the EU28.

Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 1.2% in the eurozone and by 1.5% across the EU28 in the fourth quarter of 2018, after rising 1.6% and 1.8% respectively in the previous quarter.

According to a first estimation of annual growth for 2018, GDP grew by 1.8% in the euro area and 1.9% in the EU28.