Market outlook

Update: 5 August 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 and, in particular, the financial sector. These risks come on top of risks relating to macroeconomic and political developments, which affect global and European economies, including KBC’s home markets. Regulatory and compliance risks (including 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 tornado that hit the Czech Republic in June and the recent 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 

The progress of the vaccination campaigns was the main driver of global economic growth in the second quarter, leading to positive quarter-on-quarter growth in the euro area and in the KBC home markets that have already reported 2Q-growth (Belgium and the Czech Republic). We expect reported quarterly growth in the other home markets to be positive as well. Despite the emergence of new infectious variants of the virus, recent data suggest a decoupling of the rate of infections from the rates of hospitalization and Intensive Care Unit occupancy, thanks to the availability of vaccines. We therefore expect that, in the second half of 2021, the European economies will re-open further by gradually easing the remaining pandemic-related restrictions that still weigh on them. As a result, European economic growth is expected to accelerate in the second half of 2021. European economic activity is likely to return to its pre-pandemic level in early-2022.

Our view on interest rates and foreign exchange rates 

Coordinated monetary and fiscal policy stimuli continue to support the US and euro area economies. While the start of the tapering of asset purchases in 2021-2022 by the Federal Reserve (Fed) is a possibility, we expect both the Fed and the ECB to keep their policy rates unchanged for 2021-2022. The ECB strategy review and first policy meeting suggests that these rates may remain unchanged at their current low levels (or lower) for longer than so far anticipated. 

Ten-year government bond yields in the US fell markedly in the second quarter of 2021 and continued to decrease at the beginning of the third quarter. This decline was partly driven by falling inflation expectations and market concerns about the growth outlook beyond the immediate past-pandemic recovery. However, we expect US yields to moderately increase again from their current levels in the third quarter on the back of the ongoing economic recovery and unsustainable low real yields. This will also lead to moderate upward pressure on German yields. Underlying medium-term inflation in the euro area is expected to gradually increase, helped by the announced gradual inclusion of owner-occupied housing costs in the definition of the harmonised consumer price index. As a result of continued ample liquidity provision by the ECB and low policy rates, we expect intra-EMU sovereign spreads to remain broadly stable at their current compressed levels.

As regards exchange rates, we expect the Hungarian forint to strengthen somewhat in the third quarter from its current level. This is in line with the tightening cycle started by the Hungarian central bank, which was continued on its latest policy meeting of 27 July. From the fourth quarter on, however, we expect the forint to resume its fundamental gradual depreciation against the euro. The Czech koruna is also likely to appreciate moderately against the euro. In contrast to the Hungarian forint, this appreciation is likely to be longer lived. We expect the Czech National Bank to raise its policy rate by another 50 basis points by the end of 2021, followed by another increase of 75 basis points in 2022, mainly as a result of the outlook for Czech inflation. As far as the US dollar is concerned, we expect the US dollar to depreciate to a moderate extent against the euro, driven by the continued improving outlook for global growth and inflation, high US budget and current account deficits and the higher inflation differential between the US and the euro area.

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.




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