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Taking Eurozone Growth Seriously

At least until recently, embracing the idea that eurozone economic growth may be about to take off might earn one a referral to a mental-health specialist. But analysts should consider the possibility, because, on the off-chance that growth accelerates, as it did in the first quarter, there would be some serious money to be made.

LONDON – I have been out of the world of international finance and economic forecasting for more than four years, but much of what I learned during my 30 years working full-time in the field still influences how I view the world. One lesson was to measure an entity’s economic and financial performance by how it compares both to the entity’s underlying potential and the market’s valuation of its performance. Applying this approach to the major economies gives rise to some surprising observations – and possibilities.

For starters, contrary to popular belief, world growth hasn’t been especially disappointing so far this decade. From 2010 to 2016, global output rose at an average annual rate of 3.4%, according to the International Monetary Fund. That may be lower than the 2000-2010 average, but it is higher than the growth rate in the 1980s and 1990s – decades that are not typically viewed as economically disappointing.

A breakdown of particular countries’ performance offers further insights. Despite significant political trauma, the United States and the United Kingdom have performed as expected. China, India, and Japan have also grown close to their potential. In a rare occurrence, no major economy has dramatically outperformed its potential.

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