Germany leads race for recovery

Fund managers are confident the eurozone will recover despite flat growth figures for the final quarter of last year. Data released last week reveals the region grew by just 0.3% in the final three months of 2003. This compares with 0.4% in the previous quarter, according to first estimates from Eurostat, the EU’s statistical agency. Both Threadneedle European Select Growth deputy fund manager Phil Cliff and HSBC European Growth’s Jeffrey Currington say a pick-up is on the way. Cliff predicts the eurozone will grow by 2.25% in 2004. He says: “In the manufacturing sector there are definite signs of a pick-up in terms of exports.” Demand is coming from the US and the UK, he says, and Germany is already benefiting. In the final three months of 2003, machinery orders in Germany picked up considerably, with about half the revival due to exports. Currington, who also likes Germany’s manufacturing sector, says: “At the moment it should not be a problem that Q4 was flat. We expected this. Growth might not even go up that much in the first three months of this year. It is really the second and third quarters when we expect to see something coming through.” Margaret McLaren, Britannic Asset Management’s investment director for European equities, says the figures are a “little bit disappointing”. But she also believes a recovery is on the way: “There is no doubt there is going to be a pick-up, but the recovery is going to be in the second half.” She also likes Germany and points to improved orders. McLaren says the results are not surprising because of the strength of the euro against the dollar. She says the numbers increase the probability that the European Central Bank will cut interest rates. In contrast to Cliff, Currington and McLaren, Odey Continental European fund manager Hugh Hendry is bearish about the prospects for Europe. He says the American economy will run into problems, in turn causing difficulties for the region.