International developed markets continued their strong performance in Q4 and finished the year ahead of the U.S. Both European and Japanese stocks appreciated as their economies continued to improve while expanding the wave of the ongoing global recovery. Europe was led by an increasingly optimistic German populace and manufacturing sector as Eurozone manufacturers hit a 20-year high in output. Looking forward, many expect growth in the Eurozone to be between 2% and 3% in 2018.
Japan’s Nikkei achieved a 21-year high as Prime Minister Shinzo Abe easily won reelection. A new free-trade agreement was signed by the Eurozone and Japan, further bolstering their outlooks. While Japan still has many issues including a dependency on global growth, many indicators are pointing towards another healthy year.
So, what can send this ship off course? Low unemployment, especially in tightening areas such as Germany, could lead to increased inflation and to a tightening of monetary policy by the European Community Bank. As in the U.S., this would mean higher interest rates and an eventual slowdown in growth.