Market outlook

Update: 12 November 2021

Risk statement 

As we are mainly active in banking, insurance and asset management, we are exposed to a number of typical risks for these financial sectors such as – but not limited to – credit default risk, counterparty credit risk, concentration risk, movements in interest rates, currency risk, market risk, liquidity and funding risk, insurance underwriting risk, changes in regulations, operational risk, customer litigation, competition from other and new players, as well as the economy in general. KBC closely monitors and manages each of these risks within a strict risk framework, but they may all have a negative impact on asset values or could generate additional charges beyond anticipated levels.

At present, a number of items are considered to constitute the main challenges for the financial sector. These stem primarily from the impact of the coronavirus crisis on the global economy, both as a result of a new surge in infections and following on from supply-side shortages triggered by the pandemic and related inflation fears. These risks come on top of the risks related to macroeconomic and political developments that affect global and European economies, including KBC’s home markets. Regulatory and compliance risks (including with regard to capital requirements, anti-money laundering regulations and GDPR) remain a dominant theme for the sector, as does enhanced consumer protection. Digitalisation (with technology as a catalyst) presents both opportunities and threats to the business model of traditional financial institutions, while climate-related risks are becoming increasingly prevalent, as evidenced by the summer floods in Western Europe, including in Belgium. Finally, cyber risk has become one of the main threats during the past few years, not just for the financial sector, but for the economy as a whole.

We provide risk management data in our annual reports, quarterly reports and dedicated risk reports, all of which are available at

Our view on economic growth 

As was the case in the second quarter, quarterly growth in the US and the euro area was positive again in the third quarter, despite growth decelerating in the US. The euro area economy grew in the third quarter at the same quarterly rate as in the second quarter (2.2%). European economic activity is likely to return to its pre-pandemic level by the end of 2021. Our growth outlook for KBC’s home markets is broadly aligned with our outlook for the euro area. In other words, we estimate that quarterly growth in the third quarter was positive again and above the long-term potential growth rate. Based on currently available GDP data, third-quarter economic growth actually increased to 1.8% in Belgium (compared to 1.7% in the second quarter), while it also increased to 1.4% in the Czech Republic (compared to 1.0% in the second quarter). The main risks to our short term growth outlook include longer-than-expected supply-side bottlenecks, more persistent high energy prices and a damaging cost-push spiral if rising inflation expectations become persistently embedded in the wage formation process.

Our view on interest rates and foreign exchange rates

The Fed decided to start ‘tapering’ its bond buying programme from November 2021 on. The first Fed rate hike is likely to occur in 2022, after the tapering process is completed. This scenario is consistent with the Fed’s own forward guidance, the overall favourable performance of the US labour market and strong inflation dynamics at present. 

Both US and German 10-year yields decreased at the beginning of the third quarter, before bottoming out and starting to rise again to levels that are currently slightly higher than at the start of the third quarter (particularly in the US). We expect a continuation of the upward trend in the fourth quarter of 2021 and early 2022, due mainly to higher inflation expectations and the market expectation of earlier Fed tightening. For German yields, the correlation with US yields plays a role, as does the imminent end of the ECB’s PEPP (expected in March 2022), with more clarity about what programme comes next and possibly more concrete forward guidance about the ECB’s rate policy. As a result of the ECB continuing to provide ample liquidity and maintain low policy rates, we expect intra-EMU sovereign spreads to remain broadly stable at their current compressed levels.

In order to bring high inflation back into its symmetric tolerance band around the inflation target of 2%, the Czech National Bank (CNB) started to raise its policy rate at the end of June, followed by another rate hike in early August (by 25 basis points each time). The persistence of inflationary pressure led the CNB to more sizeable rate hikes of 75 basis points at the end of September and of 125 basis points in the beginning of November to the current level of 2.75%. Based on the CNB’s communication, we expect that its tightening cycle is not yet completed. The National Bank of Hungary (NBH) also began its tightening cycle in late June in reaction to inflation rising well above the NBH’s target. It raised its base rate again in July and August, each time in larger than expected steps of 30 basis points. This was followed by more moderate steps of 15 basis points each in September and October, bringing the base rate to its current level of 1.80%. We expect the NBH’s tightening cycle to continue until at least the beginning of 2022. 

As regards exchange rates, the third quarter was a volatile period for the Czech koruna. In November, the koruna slightly appreciated against the euro after the CNB’s stronger than expected rate hike.  We expect the koruna to gradually appreciate further against the euro from current levels, mainly as a result of the interest rate differential with the euro area. The Hungarian forint was even more volatile than its Czech counterpart in the third quarter and depreciated, on balance, against the euro. We expect the Hungarian forint to remain broadly stable around its current level in the fourth quarter. After a possible temporary rebound in the first quarter of 2022 due to the interest rate differential with the euro area, the forint is likely to resume its gradual depreciation path against the euro, caused by inflation differentials.

For more detailed analyses and data, please refer to KBC Economics.


Disclaimer: the expectations, forecasts and statements regarding future are based on assumptions and assessments made when drawing up this text. By their nature, forward-looking statements involve uncertainty. Various factors could cause actual results and developments to differ from the initial statements. Moreover, KBC does not undertake any obligation to update the text in line with new developments.




We use cookies and similar technologies to make our website work better for you and ensure your online experience with us is more enjoyable and rewarding. We may also adapt our website to your needs and preferences. By continuing to use this website, you consent to our use of cookies. Learn more or reject cookies.