With European politics, it’s important to calibrate one’s pessimism. The likelihood of a disruptive outsider winning power in a major European country is small. As we write, Marine Le Pen has made it to the second round of the French election, but it appears likely she will lose to centrist Emmanuel Macron by a large margin.
And yet the French appetite for outsiders reinforces the message of the Dutch elections in March: Many of the traditional political alignments are crumbling. Troublingly, the sour public mood, the strong support for outsider candidates, and the hostility to economic reform are critical constraints on Europe’s longer-term economic outlook.
Encouraging signs in the near term
However, we must acknowledge the positive short-term outlook in Europe. Our Nowcast for the European economy is at a level not seen since early 2011, when GDP growth was running at an annualized pace of over 3%.
Purchasing managers index data are also at a six-year high. And while confidence indicators have improved, we do not see the same large gap between “soft” and “hard” data that is present in the United States.
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