Market outlook

Update: 6 August 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 (see next paragraph), trade wars as a consequence of US tariff policies and, more generally, increasing tensions between the US and Europe. 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, for example 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. This is partly driven by geopolitical tensions (state-sponsored cyberattacks), but is also increasingly supported by new technologies, such as the recent developments surrounding several frontier AI companies which enable AI-driven vulnerability discovery. KBC has already taken necessary actions to increase vigilance and capacity to process a certain upcoming increase of zero day vulnerabilities. Finally, we have seen governments across Europe taking additional measures to support their budgets (via increased tax contributions from the financial sector), their citizens and corporate sector (by, for instance, implementing interest rate caps on loans or by pushing for higher rates on savings accounts).

Recent months have been dominated by an armed conflict between the United States, Israel and Iran that began in late February 2026. The conflict has resulted in regional and increasingly global instability, disrupting trade routes and supply chains, especially in energy and other fossil-fuel-related markets, and causing significant volatility on financial markets. Financial conditions have tightened, at times putting pressure on funding markets. As a consequence, global and European economic growth projections have been revised downwards, while inflation expectations have moved higher. This has also increased uncertainty around the future path of interest rates, which have already risen over recent months. KBC’s direct exposure to the Middle East region is very limited. Nevertheless, KBC is closely monitoring the macroeconomic impact of the conflict and potential spillover effects for the group and its customers, both financially and operationally, with particular attention to energy-related and energy-sensitive sectors and counterparties. Geopolitically driven cyber threats are an additional point of attention, including heightened threats directed at large US based technology companies, which play an important role as suppliers of critical digital infrastructure to the financial sector, including KBC.

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, interest rates and foreign exchange rates

The second quarter of 2026 was dominated by the geopolitical events surrounding the Strait of Hormuz, as well as by their impact on global energy prices.

In the second quarter, US economic activity grew by 0.4% (non-annualised), slightly lower than the growth rate in the first quarter. Domestic economic growth and especially the labour market and business investment remained resilient.

Second quarter growth in the euro area economy (0.4%) was surprisingly resilient and improved compared to zero growth (0.0%) in the first quarter (although first quarter growth excluding the volatile Irish data was positive). Growth in our core countries of Belgium, the Czech Republic, Hungary, Slovakia and Bulgaria amounted to 0.0%, 0.4%, 0.4%, 0.1% (estimate) and 0.7% (estimate), respectively. Overall, growth in the euro area and our core markets is expected to remain relatively subdued in 2026 as a result of elevated energy prices and economic uncertainty.

In the euro area, headline and core inflation in June amounted to 2.8% and 2.2%, respectively. After a temporary ceasefire between the US and Iran, which – at least briefly – led to lower oil and gas price futures, the subsequent resumption of hostilities caused energy prices to rise again. Amidst a broadening of underlying inflation pressures, the ECB raised its deposit rate in June by 25 basis points to 2.25% and left it unchanged at its July meeting. Given the upward inflation risks, we expect another rate hike by 25 basis points to 2.50% in September.

The Fed kept its policy rate unchanged at 3.625% in the second quarter. It is expected to raise this rate once in the third quarter by 25 basis points, due to elevated inflation against the background of a resilient labour market.

Since the start of the second quarter, US and German 10-year yields have risen by respectively 33 and 17 basis points, due mainly to the inflationary impact of the energy price shock, its implication for expected monetary policy and, for the US, solid domestic economic growth.

In June 2026, the Czech National Bank (CNB) raised its policy rate by 25 basis points to 3.75%. The CNB is likely to maintain this restrictive interest rate policy for some time to get the underlying upside inflation risk under control. As a result of the overall convergence process of the Czech economy, we expect the Czech koruna to appreciate further against the euro in the coming quarters.

In July 2026, the Hungarian central bank cut its policy rate to 5.75%. We expect another cut in the third quarter, with a continuation of the easing cycle in 2027. Still-restrictive monetary policy and a strong exchange rate for the Hungarian forint will reinforce the disinflationary trend.

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