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I'm not going to sugar coat this: Europe's economy looks atrocious right now. If you thought the Federal Reserve had a tough time dealing with inflation, you have no idea how difficult things are overseas.

European equities have been attracting interest from U.S. investors who may be nervous about the future of domestic markets and looking to diversify by investing overseas. Two of the largest ETFs covering developed markets in Europe have pulled in billions in assets during 2023.

Wall Street had an awesome first half of 2023 after the S&P 500's worst year in 2022 since 2008.

Growth in Europe's advanced economies will slow to 0.7 percent this year from 3.6 percent last year while emerging economies (excluding Türkiye, Belarus, Russia, and Ukraine) will also see a sharp decline to 1.1 percent from 4.4 percent. While companies have found ways to improve energy efficiency in the past year, persistently higher energy prices will reduce euro area output by more than 1 percent on average in the medium term, with larger losses in more energy-intensive economies such as Germany or Italy.

Improvement In Eurozone Economic Sentiment Starts To Level Off.

Peaks in systemic stress generally result in recession and lower inflation down the line. So, the ECB's work will be done if financial conditions continue to tighten and economic activity contracts.

Recent events have had an impact on three of Europe's most important stock markets, but don't dismiss the region.

The central bank is trying to balance concerns about financial stability and inflation.

The ECB continues to fight against inflation and seems unperturbed by the market turmoil of the last few days. Dropping forward guidance, lowering inflation projections, and a growing awareness that the tightening so far can have adverse effects all suggest that today's meeting probably marks the final phase of ECB tightening.

Two of the largest Europe-focused ETFs have brought in over $6 billion this year.