Entering text into the input field will update the search result below

The Future For The Eurozone: Key Issues That Will Impact On Investors

Nov. 05, 2015 6:10 AM ET
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.
  • Eurozone PMI output of 53.9 underlines steady but negligible growth
  • Financial experts discuss the prospect of a 'two-tier' Eurozone
  • The Position of the UK in the EU remains unknown

With the Eurozone having largely recovered from its recent financial crisis, it is managing to showcase steady if negligible growth. While this may be considered as a positive development by some, however, the Eurozone economy remains extremely volatile and is precariously placed on the edge of decline.

Just as the recent Greek default triggered a depreciating economy and financial marketplace, for example, so too further developments could impact on citizens, business-owners and investors. With this in mind, it is impossible to forecast the future of the Eurozone with any great confidence.

3 Key issues that will impact on Investors

One of the most immediate concerns is the lack of economic and manufacturing activity in the region, which is measured by Markit's Purchasing Managers' Index (PMI). This offers a broad reflection of economic activity within the Eurozone, with particular focus placed on manufacturing and service sectors.

While October's figures rose to 53.9 points from a four-month low of 53.6 in September, quarterly growth of 0.4% represents minimal expansion.

This will heap pressure on the European Central Bank to extend its existing stimulus measures next month, creating further instability and a definitive lack of long-term growth.

The Potential Restructuring of the Eurozone

According to the inaugural MNI Eurozone Barometer (which is a survey conducted by Market News International), financial professionals are forecasting that the structure of the region will evolve in the coming months.

More specifically, the Eurozone is likely to adopt a two-tier structure, with one featuring financial powerhouses that would merge to pool sovereignty and the other including less well-resourced nations that would avoid deeper integration. This 'two-speed Euro region would offer greater stability within the region, while also strengthening the value of the single currency over a consistent period of time.

43% felt that this was likely to occur, with this demographic also believing that such a move would strengthen the financial markets.

The Position of the UK in the Eurozone

While the UK does not feature as part of the Eurozone, its prominent role in the EU, consistent economic performance and trade relations with the region means that it will play a pivotal role in driving future growth. This should come as no surprise, especially as the British economy continues to grow on the back of sales and rental property market expansion.

With a referendum scheduled to be held in 2017 to determine whether or not the UK remains in the EU, however, there remains considerable uncertainty concerning the future of the Eurozone. This is also impacting on the financial marketplace (particularly the foreign exchange) with increased volatility creating a risk-averse approach among investors and encouraging them to develop a more diverse portfolio.

Beyond this, 18% of respondents to the MNI survey believe that the Euro will no longer exist in its current format by the end of 2020. This would cause even greater upheaval, which in turn explains why the structure that underpins the Eurozone and the single currency is so important.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You