For many, even a year ago the prospect of an economic recovery in the eurozone seemed unlikely and certainly few investors could have predicted that Greece would issue a five-year bond, let alone that it would be quite so well received, as it was in April with the yield on the deal at 4.95 per cent.

In spite of some upbeat figures from the region, the threat of deflation looms large and investors are looking to the European Central Bank (ECB) for its response. Meanwhile, the situation in Ukraine rumbles on, creating some uncertainty.

Hetal Mehta, Legal & General’s European economist, observes that the cyclical recovery in Europe is now “well underway”.

Ms Mehta says: “Certainly the turnaround in the labour market has taken me by surprise. It’s been a bit stronger and sooner than expected. A year ago we still thought unemployment would be creeping up and we thought growth would be even more anaemic and that certainly has been better than we thought.

“It’s really the consumer side that has probably surprised more positively. The improving labour market is a huge driver of that.”

She considers the events in Ukraine a “small risk factor” that is unlikely to derail the recovery. Instead, Ms Mehta highlights concerns around deflation in Europe and the ECB’s reluctance to take a “firm stance”.

According to Canaccord Genuity, consumer price inflation has fallen to an annual rate of 0.5 per cent and factory gate prices are contracting at -1.25 per cent year on year.

Robert Jukes and Edward Smith, global strategists at Canaccord, suggest some form of monetary policy is necessary for the eurozone to avoid a period of stagnation. They note that Mario Draghi has made a number of intimations that the ECB is devising a programme of quantitative easing that will target asset-backed securities.

The strategists add: “In April, he confirmed that the strength of the euro requires intervention. Although we have next to no details of the programme as yet, we believe speeches made by ECB board members less prominent than Mario Draghi offer further clues. Piecing these together and filling in the gaps – perhaps too optimistically, we concede – we believe that the ECB could have hit upon a suitably holistic approach to stimulating the economy, whereby a programme to purchase asset-backed securities could be the linchpin in simultaneously fixing fragmented financial intermediation, directing capital to the areas that need it, stimulating aggregate demand and, crucially, keeping the German taxpayer happy.”

One of the most recent data points to come out of Europe was the European Monetary Union Markit Manufacturing Purchasing Managers’ Index, which came in at 53.3 on April 23, beating expectations.

Aaron Barnfather, European Alpha fund manager at Lazard Asset Management, says: “It’s clearly above the 50 mark, which is the indicator of growth. So I think the recovery in Europe is becoming more self-sustaining.”

He also points to previously weak emerging market currencies, which had been impacting on European exports.

Mr Barnfather notes: “Emerging market currencies look like they’ve started to stabilise and that’s very supportive for European equities generally because that will allow companies to be a little more optimistic as they go through the year, and will stabilise returns.”

Ellie Duncan is deputy features editor at Investment Adviser