What's going on?
It looks like the eurozone’s economy is continuing to grow significantly faster than the US economy (tweet this), according to influential survey data released on Tuesday.
What does this mean?
The data showed that activity in the eurozone continued to grow at its fastest rate in six years in early May (following a similar reading in April). There was good news in the US too: “service” sector companies (like restaurants, law firms and software companies) said activity had picked up moderately following a drop in momentum in previous months. However, US manufacturing, while still growing, experienced its weakest growth in six months. All in all, the data suggests the eurozone’s economy is growing at an annualized rate of about 2.5%, compared to only 1.5% in the US.
Why should I care?
The bigger picture: The US Federal Reserve (“the Fed”) and the European Central Bank (ECB) are going to have to get on the same page eventually.
The Fed is widely expected to increase its target interest rate for the third time in six months when it meets in June. It is, slowly, making it tougher for the economy to grow (by making it more expensive to borrow, and thus spend, money). Meanwhile, the ECB continues with “emergency” measures to keep interest rates in the eurozone low – and encourage economic activity. As the eurozone continues to grow more quickly than the US, the ECB’s extreme policies become less justifiable.
For markets: Investors’ enthusiasm for Europe keeps growing!
Improved economic growth typically means companies can sell more of their products and make more money – which is good for stock prices. Therefore, it makes sense that internationally-orientated investors would move money into Europe’s stocks as its economy improves (especially since many European companies look like they are being valued less than similar companies in America). However, it’s worth noting that stocks in Europe have already been performing better than their US counterparts for a few months now.