Despite some signs of improvement in recent months, Europe continues to underperform U.S. growth on a cyclical basis, mainly due to tighter fiscal policy and a faster transmission of tighter monetary policy. However, this underperformance may become entrenched on a secular basis, as Europe faces a number of longer-term headwinds. Germany looks particularly exposed, but the rest of Europe is not immune, including the U.K. Recently, Europe’s economy has diverged significantly from the U.S. In our minds, this is driven by two key factors. First, fiscal support was much more aggressive in the U.S. during the pandemic and ... (full story)