As the Eurozone gets its house in order, countries are moving past a period of fiscal austerity, and European markets, along with related exchange traded funds, could begin to see growth pick up.
The International Monetary Policy estimates that fiscal reduction by Group of Seven nations will slow to almost half the pace of 2013 as the average budget deficit diminishes to a quarter of where it was three years ago, reports Simon Kennedy for Bloomberg. [Europe ETFs Look to Keep Rolling]
“The softening of the fiscal drag is likely to play an important role in supporting a pick-up in global growth,” Jose Ursua, an economist at Goldman Sachs Group Inc., said in the Bloomberg article.
European governments enacted austerity measures, such as raising taxes and cutting public spending, as a way to reduce bloating debt. The austerity measures cause a fiscal drag where companies and consumer cut back in light of higher costs while the government spends less. [BlackRock: Is Europe Making a Comeback?]
Economists at Goldman Sachs and Deutsche Bank believe that easing austerity measures could almost double the rate of expansion in industrial economies to an average 2.2% next years.
The Vanguard FTSE Europe ETF (NYSEArca: VGK) is the largest Europe-related ETF. VGK is up 18% year-to-date. The iShares Europe ETF (NYSEArca: IEV) also tracks European stocks. IEV is up 17.8% year-to-date. The SPDR EURO STOXX 50 ETF (NYSEArca: FEZ) does not include United Kingdom exposure and better represents Eurozone countries. FEZ is up 18.6% year-to-date.
The euro currency strengthened to a five-week high against the U.S. dollar Thursday after European Central Bank President Mario Draghi kept interest rate targets unchanged and gave no indication that the ECB will loosen its monetary policy further, Bloomberg reports.
“There’s nothing that’s happened today to give the impression euro-dollar is going to go down,” Kit Juckes, global strategist at Societe Generale SA, said in the article. “All that can happen is a really big payroll number tomorrow or something like that from the states. That’s all that could change it at all.”
The CurrencyShares Euro Trust (NYSEArca: FXE) rose 0.6% Thursday while the euro appreciated 0.5% to $1.3665 after touching $1.3674.
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Max Chen contributed to this article.