The Eurozone, also called the euro area, is a subregion of the European Union (EU) that includes 20 countries* that have adopted the euro as their common currency. These are Austria, Belgium, Croatia, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. It is a market of 350.2 million people. Monetary policy for member-states part of the euro area is coordinated by the European Central Bank (ECB). 

The region has been struggling to stoke growth due to limited economic activity, with a record of a 0.4 per cent expansion in 2023. This is evidenced by consistent negative consumer and business confidence readings that is weighed down by geopolitical concerns, expectations of faster inflation, high borrowing rates, an aging population, and declining labour productivity. 

In 2023, the services sector accounted for about 73 per cent of cumulative GDP for the euro area, one-fourth is from the industrial sector, while agricultural output contributes less than 2 per cent. 

Investor confidence towards the euro area has turned negative since July 2023, according to monthly surveys of the European Commission. An EU-wide study carried out by former ECB chief Mario Draghi i30 dentified that European nations have lost their competitive edge relative to the global economy due to a lack of innovation and heavy reliance on imported goods, the latter at the cost of “secure” supply chains. 

There is, however, limited scope for greater public spending to induce private consumption and investment to address these deficiencies. The cumulative level of government debt remains elevated at 88.6 per cent of GDP in 2023, higher than the pre-pandemic level. This is further complicated by the fact that some member-states bear a bigger debt burden than others, like Greece (159.8 per cent of GDP as of March 2024) and Italy (137.7 per cent of GDP), which effectively raises borrowing costs for fellow member-states which have managed to keep public debt at sustainable levels.

*Note: The seven EU member-states which are not included in the euro area are Bulgaria, Czech Republic, Denmark, Hungary, Poland, Romania, and Sweden. 

House view: The euro area is stagnating, and Lundgreen’s recommends market players to remain underweight towards investments in the region. The challenges confronting the euro area are increasingly becoming more difficult especially in the face of weaker global demand.

Updated as of 30 September 2024