By
Steve Muchoki
April 16th, 2024
Economic strategists predict that the economy of Europe is in a better position to outperform its US counterpart in 2023.
Several analysts believe that the US economy and stocks could face a challenging 2023 run, even trailing Europe in the process. For instance, Deutsche Bank’s chief investment officer (CIO) for EMEA, Zeynep Ozturk-Unlu, predicted that Europe would outperform the US in economic growth and capital markets this year. Ozturk-Unlu added that contraction and recession fears could accelerate more in America than in the eurozone.
US Economy Could Trail Europe in 2023 despite Latter’s Peculiar Macroeconomic Constraints
Ozturk-Unlu expects Europe to lead the US economy in 2023 despite the region’s peculiar set of challenges. These include the ongoing war in Ukraine, sustained energy crisis, and inflation yet to peak. Commenting on Europe’s energy crisis and inflation that would not hit the European Central Bank’s 2% target anytime soon, Ozturk-Unlu explained:
“Europe has been in expansionary fiscal policy mode for quite a while, especially due to the energy crisis. But beyond that, Europe is also betting on the reopening of China, and it is going to give positive tailwinds to the European growth story.”
Nonetheless, the Deutsche Bank EMEA chief investment officer highlighted areas that could spur the European economy further in 2023. These include the diversification of sectors across Europe compared to the US. In addition, Ozturk-Unlu argues that Europe currently boasts more sustainable growth production, especially in Germany and France. She also compared stock potential between the US and Europe. According to the CIO:
“It doesn’t mean Europe [stocks] is completely immune and is in great shape, but in relative terms, the shift from growth [stocks] to value actually gives a little bit more opportunity to Europe compared to the US.”
US Tech Stock 2022 Drubbing
US tech stocks, usually called growth stocks, took a hard hit last year amid continued interest rate hikes by the Federal Reserve. That unsavory development also encroached on the future earnings potential of these stocks and triggered a major selloff in 2022. By comparison, value stocks tend to outperform as rates ride higher, and Europe has an abundance of value stocks compared to its peers.
The European Stoxx 600 index has already risen 5% on a year-to-date basis compared to the US S&P’s 3.4% rise for the same period. Furthermore, European shares also outperformed the US in 2022 despite registering their worst performance since 2018. Last year, European stocks ended with a 13% loss versus the 19.4% recorded by the S&P 500 for the same period.
Ozturk-Unlu concluded, saying, “the world outside of the US will outperform the US, and Europe in relative terms, in equities, will outperform.”
Besides Deutsche Bank, other economic analysts and strategists also make strong cases that Europe will thrive in 2023. These analysts point to further Fed rate tightening, eurozone fiscal stimulus, and China’s reopening.
Safra Sarasin’s chief economist Karsten Junius maintains that there will be a flat GDP growth in Europe this year. This economic forecast fares better than Junius’s projected 0.5% contraction in the US. However, he does not expect his guidance to result in outperformance in equity markets. According to Junius, the recent euro appreciation could weigh on earnings with a three-month delay.