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European Investment Prospects

The economy is looking bleak in Europe. The Japanese recession may be more severe than previously believed. Our interest is in European investment prospects at this time. According to GMA News Online a recent Euro zone warning of a massive weakening of the economy has hit stocks and is serving to keep the price of oil down.

European stocks and the euro felt the effects on Monday of a stark warning about the currency bloc’s economic prospects, keeping pressure on rock-bottom oil prices following weak data from Asia.

ECB policymaker Ewald Nowotny’s warning of a “massive weakening” of the economy followed a rating downgrade in the bloc’s third largest economy Italy, buoying bond markets as investors positioned for a fresh round of central bank stimulus.

Europe’s index of top shares, the FTSEurofirst, dipped 0.6 percent, as weakening Chinese trade and data showing Japan’s recession to be deeper than initially expected fed global growth fears.

How much will the Euro zone economy weaken? How far will the Euro fall? And how will these factors affect European investment prospects?

When to Invest

If you are looking for deals in European stocks you may wish to wait and see how bad things get. The old saying from Rothschild is to invest when there is blood in the streets. That is to say, wait until things are at their worst and then pick up deals before thing start to get better. For example construction companies took a recent hit and could also be beneficiaries of stimulus cash. Bloomberg reports the European stock decline.

A slump in construction and chemicals companies sent European stocks down after a four-week rally. The Stoxx Europe 600 Index slid 0.5 percent to 349.37 at 12:30 p.m. in London after a 1.1 percent increase last week propelled it to its highest level since January 2008. Sika AG tumbled 19 percent today and Cie. de Saint-Gobain SA also fell as a hostile bid by Europe’s biggest supplier of building materials sparked a management revolt at the Swiss company. The DAX Index dropped 0.5 percent from a record after a report showed German industrial production climbed less than forecast. Bayer AG declined after a trade group said 2015 sales growth for the nation’s chemical industry will be similar to this year’s.

The economy in the euro area is “ticking along at the bottom. No major drama but no real sign of growth either,” said Lex Van Dam, a fund manager at Hampstead Capital LLP in London. “European markets remain underpinned by the Draghi put, but it’s worrying that he seems to be losing support within his own monetary committee.”

European stocks recent hit a seven year high with a month long rally. Now things might get bad as economic news worsens. The general opinion is that the European central bank will start another round of stimulus measures. Correctly anticipating how these measures will affect the economy will be a good guide to European investment prospects.

Deflation

The overriding concern of policy makers in Europe is that they will descend into a period of deflation similar to what has plagued Japan for more than two decades. The Dallas News refers to this prospect as Europe’s economic bugbear.

But it’s not debt – Europe’s main economic problem in recent years – that is driving speculation the ECB will switch on the printing press to help the economy. It’s deflation.

Longer-term deflation encourages people to put off spending and can prove difficult to reverse because it requires altering people’s expectations. It can lead to years of economic stagnation, as in Japan over the past two decades, or at worst, into something more pernicious, such as the Great Depression of the 1930s.

European investment prospects hinge on whether or not the central bank will be able to avert a slide into long term deflation in Europe.

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