While there are significant downside risks in 2017, particularly with key national elections due to be held in Germany, France and the Netherlands, prospects for the European market seem promising.
Economic surveys show that manufacturing activity and economic sentiment in the EU increased to their highest levels since 2011 in the closing months of last year.
By the end of 2016, unemployment in the 19-nation euro zone had fallen to its lowest point in more than seven years: 9.8% according to Eurostat compared to over 20% a year earlier.
The big question in Europe this year is whether fragile economic growth and unprecedented central-bank stimulus will be overtaken by populist politics which could threaten the future of both the euro and the European single market.
But while Europe’s political calendar in 2017 certainly creates uncertainty, it might also offer opportunities.
In a recent interview for CNBC, Francesco Garzarelli, cohead of global macro and markets research at Goldman Sachs noted that a potential right-wing president in France could lead to a stronger reform agenda in Europe. "If France were to change gear and become more inclined to move forward into reforming its economy I think that will force the likes of Italy, Portugal, Greece to do the same," Garzarelli said.
In fact, more economic analysts now seem inclined to give Europe the benefit of the doubt and are suggesting that growth will exceed expectations. According to a research team led by Anais Boussie, writing in the Credit Suisse European Economics note on 9 January, "The euro area is set to deliver an upside growth surprise this year. Market expectations for growth are too low, in our view. Growth should strengthen on the back of stronger global trade and a pick-up in construction activity. It should remain supported by consumer spending, for which the fundamentals are improving,"
The Credit Suisse team forecast that GDP in the euro-zone will rise by a sturdy 2.0% in 2017, growth that will be underpinned by consumer spending. Instead of being fuelled by things like low oil prices, Credit Suisse reckon consumer spending will grow thanks to improving fundamentals like labour demand.
They also note that "construction investment has contributed positively to growth for the past six quarters, and appears to be accelerating”.
Credit Suisse are confident that "the risk of deflation in the euro area has largely disappeared and headline inflation is set to rise sharply in the first half of 2017 as the strong dampening effect from past oil price declines fades away." They also expect that the European Central Bank will be “dull” (a positive trait after a few too many “interesting” years) – quantitative easing will continue to provide greater liquidity at least until the end of the year while the base interest rate is likely to remain unchanged.