We’ve been asking investors and analysts to share their favourite charts of the year.

David Watts at CreditSights offers the chart above, and says:

The recovery in euro area household spending is being driven by disposable income growth due to both increases in wages and rising employment. That means that household expenditure is now the largest contributor to corporate revenue growth. Through the sovereign crisis the main supporter of revenues was net exports due to weak euro area domestic demand relative to external demand. That has changed since the since the middle of 2013. In addition to that we have yet to see a significant rebound in corporates’ inventories.

Historically there has been a good relationship between sales and inventories as a percentage of sales, but that relationship has diverged since 2013. We think that divergence is because Europe was hit by another demand slump in 2010/2011 caused by the Eurozone sovereign crisis right at the time that corporates were in their restocking phase. That both dented confidence and left a very large inventory overhang.

In the subsequent four years following the sovereign crisis, we have seen that inventory position normalise as companies have been reducing inventory almost continuously throughout that period. We think that process of inventory run down is now largely complete and we expect to see corporate inventories starting to make a big contribution to euro area GDP in 2016.

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