Europe briefing –
Although the overall performance of European equity markets was relatively muted during August, returns at individual country level were rather more mixed.
Ireland generated a strong performance during the month, and the benchmark ISEQ 20 Index rose by 4.7%. Research from Bank of Ireland suggests that confidence amongst Irish businesses and consumers has improved since the UK’s Brexit vote in June. Sentiment amongst industrial and retailing firms rebounded particularly strongly during August; in comparison, optimism within the services sector showed a slight deterioration.
At the other end of the performance spectrum, Denmark’s OMX Copenhagen 20 Index fell by 5.4% during August and Denmark’s government downgraded its predictions for domestic economic growth to 0.9% in 2016 and 1.5% in 2017. Whilst warning that the backdrop for growth in Denmark’s economy has “turned bleaker”, the government continues to expect “modest” economic growth and “solid” employment growth. Denmark’s economy expanded at a quarterly rate of 0.5% during the second quarter, compared with growth of 0.7% in the first three months of the year.
The eurozone’s economy expanded at a quarterly rate of 0.3% and an annualised rate of 1.6% during the second quarter. Italy’s economy stagnated during the second quarter, having posted growth of 0.3% during the first three months on the year. A devastating earthquake in central Italy undermined sentiment towards the end of the month. The FTSE MIB Index endured a relatively volatile month, but ended August in positive territory, rising by 0.6%. The International Monetary Fund (IMF) expects Italy’s economy to expand by 0.9% during 2016; meanwhile, the eurozone is predicted to post growth of 1.6%.
Having fallen sharply in May, industrial production in the eurozone rebounded during June, rising at a monthly rate of 0.6%. Elsewhere, the rate of unemployment in the euro area remained unchanged at 10.1% and the annualised rate of inflation stayed at 0.2% during August. The news fuelled hopes that European Central Bank (ECB) policymakers might consider implementing additional stimulus measures.
Confidence amongst German firms deteriorated sharply in August, according to Ifo’s Business Climate Index and economic growth in Germany lost momentum during the second quarter. The country’s economy expanded by 0.4% during the second quarter, compared with 0.7% during the first quarter. Nevertheless, the Dax Index rose by 2.5% over August as a whole; in comparison, France’s CAC 40 Index ended August largely unchanged.