Growth surprise

During this last week, initial data was released on Euroland growth in the first three months. With quarterly growth of 0.4 percent, the figure for the Eurozone came as a bit of a positive surprise. The indications for economic growth in Germany in Q1 are likewise on the favourable side. In other words, the economic performance in Q1 is clearly more upbeat than expected only a few weeks ago, when all was awash in a great wave of growth pessimism. During this period, many economic outlooks were revised downwards, which from today’s viewpoint was no doubt too cautious. We uphold our forecasts and therefore see no need to change them for the time being.

In the first few months of the year, the stock markets were not deterred by the growing concerns as regards growth. Prices rose across the board and in fact in the USA some all-time highs were achieved. Once again, central bank monetary policy was a key driver behind the stock markets. Low interest rates in Euroland in the long term and the rising expectation that the Fed would possibly reduce interest rates again going forward no doubt constituted one good reason for the positive stock-market trend. By contrast, corporate profits contributed little to the upbeat performance.

Equity valuation levels have thus climbed, of course. However, we have seen in the past that in phases of very low interest rates and yields, equity valuations can stay above the long-term median even for longer periods. In other words, given current conditions this trend is definitely not a cause to get nervous.

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