Finding promise and consistency in turbulent times: lessons from the EU

The first quarter of 2016 has proven grim for a number of leading markets, most starkly for the European Union. A year ago, the EU grappled with Greece’s sovereign debt crises and that country’s potential exit from the economic bloc. Instead of light at the end of the tunnel, the EU is now faced with the possibility of the UK renegotiating its membership terms — or perhaps leaving the governing consortium entirely.

The International Monetary Fund’s forecasts show EU growth flatlining at 1.5 percent in 2015, with only a marginal uptick to 1.6 percent expected in 2016. Those numbers fall far below US performance, which is anticipated to hit three percent this year. These forecasts also speak volumes on the challenges the EU currently faces. Regional industrial output contracted by 0.7 percent from the previous month in November 2015, with demand from China and other markets waning with the volatile global economy.

But investors who have the fortitude to look beneath the EU’s stressed exterior will find a more inviting landscape. If European Central Bank chief Mario Draghi’s statements tell us anything, it’s that investors should reconsider their impulse to strike the EU from their lists of near-term destinations.
This isn’t Europe’s finest economic hour, but investors have cause for optimism. The following areas represent ripe opportunities for investment:

1. Fast-Moving Consumer Goods

Ireland’s economic growth rate accelerated to 6.9 percent in 2015, making it a standout among advanced economies. October 2015 marked the first month since 2008 in which the country’s unemployment rate fell below nine percent, buoying investors’ confidence in potential consumer spend.

Key market indicators recently showed a spending surge in items like footwear and clothing as the Irish government weans itself off nearly a decade of austerity measures. Spain’s economy also seems to be rebooting, with the Bank of Spain pegging 2015’s GDP growth at 2.8 percent, up from 1.4 percent in 2014. Declining interest rates are fueling mortgage consumption, and there’s been a reported rise in car sales and industrial output as well. Those improvements have created opportunities that most investors once thought were impossible in the Spanish economy.

In January 2016, the UK reported its strongest rise in retail sales in more than two years, thanks to consumer appetites for computers and clothes. Spain and Ireland should look particularly attractive to investors in fast-moving goods industries. This is an opportune moment to develop new strategies all across the continent.

2. Situations Driven by Skewed Currencies

The euro is exchanging against the US greenback at unprecedented lows following a strong rally by the dollar in 2015. While this has been widely discussed as a barometer of the EU’s weakness, it creates excellent openings for exporters to develop a competitive edge at a time when demand from key markets is faltering.

Investors should position themselves to harness the opportunities presented by the comparatively weak euro. The UK and other governments have made significant policy commitments to boosting exports. In December 2011, the UK announced a goal of having 100 000 new businesses exporting by 2020, initiating a lucrative tide that investors can ride for the next several years.

3. Tourism and Hospitality

The EU’s relationships with different African markets also signal opportunities for investors. In places such as Kenya, where the EU accounts for about 22 percent of exports, rising consumption and investor confidence bode well for African investors. Kenya’s tourism and hospitality sectors rely heavily on European businesses, and they took a beating while the region slumped. But improved conditions will pump money back into those industries, giving investors reason to remain where they are.

Exporters in East African Community member countries should be heartened by that bloc’s increasing ties to the EU. The renewed Economic Partnership Agreement between the E.A.C. and the EU creates a fresh crop of opportunities that can be unlocked as trade barriers come down.

4. African Diaspora Remittances

As EU members’ fortunes rise, consumers who have left African countries and settled in Europe will send increased remittances home to their loved ones. This will strengthen consumption in Africa as more people have disposable income to spend on consumer goods. Europe’s slow but inevitable rebound will provide investors in Africa a timely tailwind for finding new opportunities.

While it may be easy to see the EU’s situation as dire, the resurgence of the EU economy offers possibilities in local and foreign markets for investors — but only for those who are willing to stay the rocky course.

Konstantin Makarov


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