Market outlook

Update: 12 February 2026

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 factors are considered to constitute the main challenges for the financial sector. These stem primarily from geopolitical risks which have increased significantly over the past few years (including the war in Ukraine, conflicts in the Middle East, trade wars as a consequence of US tariff policies and, more recently, tensions over Greenland). These risks result or may result in shocks for the global economic system (e.g., GDP and inflation) and the financial markets (including interest rates). European economies, including KBC’s home markets, are affected too, creating an uncertain business environment, including for financial institutions. Regulatory and compliance risks (in relation to capital requirements, anti-money laundering regulations, GDPR and ESG/sustainability) also remain a dominant theme for the sector, as does enhanced consumer protection. Digitalisation (with technology, including AI, as a catalyst) presents both opportunities and threats to the business model of traditional financial institutions, while climate and environmental-related risks are becoming increasingly prevalent. 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. The war in Ukraine and geopolitical tensions in general have triggered an increase in attacks worldwide. Finally, we have seen governments across Europe taking additional measures to support their budgets (via increased tax contributions from the financial sector) and their citizens and corporate sector (by, for instance, implementing interest rate caps on loans or by pushing for higher rates on savings accounts).

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

Our view on economic growth

US economic activity grew at an estimated 0.7% (non-annualised) in the fourth quarter of 2025, compared to 1.1% in the third quarter. This was mainly the result of the resilient labour market and business investments. Overall growth dynamics in 2026 will likely remain broadly stable in line with the potential.

Fourth-quarter growth in the euro area economy (0.3%) was in line with the third quarter (with growth in our core countries of Belgium, the Czech Republic, Hungary, Slovakia and Bulgaria at 0.2%, 0.5%, 0.2%, 0.2% (estimate) and 0.9% (estimate), respectively). Overall, growth in the euro area and our core markets is expected to accelerate moderately in the course of 2026 on the back of fiscal spending, infrastructure investment and private consumption.

However, the global trade environment remains challenging and recent geopolitical risks, such as renewed and escalating trade tensions, are mounting again with potentially substantial repercussions for the core markets. The main internal risk remains political uncertainty, with - for example - upcoming parliamentary elections in Bulgaria and Hungary on the agenda.

Our view on interest rates and foreign exchange rates

In the euro area, headline and core inflation fell in January to 1.7% and 2.2%, respectively. Although core inflation is still elevated, it is expected to gradually decline further towards the 2% target rate. However, euro area inflation is likely to temporarily fall below the 2% target in 2026 as a result of the year-on-year trend in energy prices. In the US, headline and core inflation in December were stable at respectively 2.7% and 2.6%, but (both) remained stubbornly above the Fed’s target. However, both are also expected to gradually converge towards the 2% target rate in the medium term.

The ECB confirmed its 2% deposit rate again at its February policy meeting, indicating that it is in a ‘good place’ to react to future events, if necessary. We conclude from this that 2% is likely to be the bottom of the ECB’s interest rate cycle.

In the fourth quarter, the Fed cut its policy rate on two occasions by 25 basis points each time, taking it to 3.625%. Given the resilience of the US labour market and the fact that inflation is still above target, the Fed paused rates at its January policy meeting. One more rate cut in the third quarter, followed by another in the fourth quarter (by 25 basis points each time) will likely bring the policy rate back to a ’neutral’ level by the end of 2026.

Since the start of the fourth quarter, German and US 10-year yields have risen by around 20 and 10 basis points, respectively, to their current level of about 2.85% and 4.30%. While higher German yields mainly reflected a further decompression of the term premium, the increase in US yields was caused primarily by higher risk premiums on US assets triggered by a new wave of geopolitical risks.

The Czech National Bank (CNB) kept its policy rate unchanged at 3.50% in its February policy meeting, which is likely to be the bottom of its easing cycle. The CNB is likely to maintain this slightly restrictive interest rate policy for some time to get the underlying upside inflation risk under control. As a result of interest rate support and the overall convergence process of the Czech economy, we expect the Czech koruna to appreciate further against the euro in the coming quarters.

The Hungarian central bank has kept its policy rate unchanged at 6.50% since September 2024. We expect the next rate cut in the second half of 2026 at the earliest. Monetary policy will remain restrictive for quite a while to bring inflation under control by pursuing a ‘strong-forint’ policy. Nevertheless, Hungary's structurally higher inflation relative to the euro area is likely to cause the forint to gradually depreciate against the euro over time.

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