Page 14 - ISQ UK JANUARY 2020

INVESTMENT STRATEGY QUARTERLY

2020 Europe Outlook:

Can Lagarde Inspire Change?

Chris Bailey, European Strategist, Raymond James Investment Services Ltd.

For over a decade Angela Merkel has not had much eurozone government-level initiatives - Christine Lagarde
competition as the most important woman in pan- observed that ‘other policy areas must contribute’. This
includes ‘governments with fiscal space should be ready to
European political and economic circles. However
act’ - which felt like an overt hint to the government of Angela
with the long-serving German chancellor in her Merkel - and that ‘structural policy areas must be substantially
political twilight, investors with a view towards the stepped up’. This was despite a little hint that the lagged
mid or later years of this decade may now look towards benefit of a long period of loose ECB policy is positively
impacting with the observation of ‘some initial signs of
her fellow German - the recently elected new European
stabilisation’, the updated growth and inflation analysis up to
Commission president Ursula von der Leyen - as being 2022 still shows at the end of the period only a 1.7% inflation
of more prospective influence. By contrast, my choice rate (below the 2% target) and a 1.4% economic growth rate,
would be somebody else: the recently appointed which Lagarde herself admitted was below potential.
President of the European Central Bank (ECB) Christine The other noteworthy aspect of Christine Lagarde’s first ECB
Lagarde. press conference was her confirmation of a monetary policy
strategic review, which will conclude by the end of the year. As
It was just one of those unfortunate timing juxtapositions that we have seen with other central banks, such musings can
President Lagarde’s first ECB press conference was on the impact ongoing policy perceptions, and no doubt there will be
same day as the UK general election. Nevertheless, it was much debate over the next few months what this will mean for
good to hear that she is ‘going to be myself’ and certainly ECB policy. Watching the eurozone bond markets will provide
there were some hints about stylistic presentation differences many insights into the magnitude of any change. Whilst it is
compared to her predecessor Mario Draghi, which ECB unlikely that either the level of eurozone interest rates or the
watchers will no doubt pore over in upcoming months. quantum of quantitative easing will change during 2020, look
Unsurprisingly there was no change to policy and - in an out for the conclusions from the ECB’s review of its inflation
utterance akin to Draghi’s own refrain pushing the need for targeting. It is possible that this may become unsymmetrical,

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