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Chief economist update: Europa rides the bull once again

Just like the myth of Europa, Eurozone equities are riding on the back of a bull.

Eurozone equities soared to their highest levels in 13 years. The VStoxx index - the Eurozone's fear gauge dropped to 13-month lows. Lucky 13.

The Euro Stoxx-50 index closed at 3,977.83 points overnight - up 12% year-to-date -- and the VStoxx index dropped to a reading of 16.7 points - down 33% year-to-date - just as the European Central Bank (ECB) released the minutes of its 11 March of meeting detailing the Governing Council's concern over the regions' growth outlook due to coronavirus mutations and the slow pace vaccinations in the continent.

To wit: "...the ongoing pandemic - including the spread of virus mutations - and its implications for economic and financial conditions continued to be sources of downside risk."

But have no fear, European Central Bank (ECB) president Christine Lagarde is here, whispering hope that "although downside risks associated with the pandemic remain in the near term" the "...risks surrounding the euro area growth outlook have become more balanced".

The 'minutes' "re-emphasised the dichotomy between continued elevated risks to the outlook in the short term and more positive developments in the medium term. While the degree of uncertainty was still high, it was seen to have lessened compared with at the time of the December projections. It was noted that financial market dynamics suggested a rather positive outlook".

This is backed up by recent upgrades to the Eurozone's economic growth outlook by both the OECD and the IMF.

The OECD's March 2021 "Interim Outlook Forecasts" has Eurozone GDP growing by 3.9% this year - up from 3.6% it forecast it December - and 3.8% in 2022 - up from 3.3%. Similarly, the IMF's April 2021 "World Economic Outlook' report sees the region's economy growing stronger - 4.4% in 2021 and 3.8% in 2022—compared with the 4.2% and 3.6% it projected three months earlier.

Then again, if all else fail and to counteract the risks to growth, "we will continue to conduct net asset purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1.850 trillion until at least the end of March 2022" and "stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry".

Former ECB president Mario Draghi was dubbed 'Super Mario' for doing "whatever it takes" to revive the Eurozone economy from the global financial crisis and Grexit but as the ECB's balance sheet shows, Madam Lagarde has supersized this.

Just as we were advice not to fight the Fed, I wouldn't be standing in the way of the ECB either and ... that's no myth.

Read our full COVID-19 news coverage and analysis here.