Spanish elections should not throw markets off track

Kevin Lilley, manager of the Old Mutual European Equity fund, Old Mutual Global Investors

The outlook for European equities remains positive despite the inconclusive result of the Spanish national election held yesterday, in which no party won a majority.

Although there is no outright winner of the election and weeks of political wrangling could lie ahead, I believe the market reaction is likely to be muted overall. I would not expect Spain to outperform, but I do not expect this to damage the European equity story.

Spain has one of the highest growth rates in the eurozone. In the fourth quarter GDP growth in Spain was 3.4%, its highest rate since the fourth quarter of 2007. The job reforms enacted will continue to have beneficial results, and Spain has already passed its budget for 2016.

European economies generally have been recovering. Expect tax giveaways in France and Germany ahead of their elections in 2017. Europe is benefitting from several stimuli: European Central Bank quantitative easing, the lower Euro which helps exports, and the lower oil price which puts money in consumers’ pockets.

Germany will also receive a boost from the migration of people from the Middle East, both because of increased government spending and because of the contribution that they will make to the economy in future years.

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