Market outlook

Update: 13 November 2025

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 and trade wars as a consequence of US tariff policies). 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

According to our estimates (non-annualised), US economic activity grew by 0.7% in the third quarter of 2025, compared to 0.9% in the second quarter. Due to the US government shutdown, no official third-quarter figure has been published yet. Growth was again largely attributable to resilient consumer demand and non-residential investment. In line with the weakening US labour market, US growth is expected to slow down in the fourth quarter. We expect it to pick up again in the course of next year.

Against the background of the US-EU tariff agreement of 27 July, and despite ongoing uncertainty surrounding economic policy and trade relations, growth in the euro area economy picked up to 0.2% in the third quarter (with growth in our core countries of Belgium, the Czech Republic, Hungary, Slovakia and Bulgaria amounting to 0.3%, 0.7%, 0.0%, 0.1%* and 0.6%*, respectively). Barring new shocks, it is likely that we are past the bottom of the European business cycle, with growth improving further in the coming quarters on the back of defence spending, infrastructure investment and private consumption.

In the short term, the biggest internal risk to the European economy is political instability. The main external risk remains a resurgence of the global trade conflict, with a direct impact through imposed trade tariffs and indirect consequences through a possible diversion of trade flows from China to Europe.

* KBC estimates.

Our view on interest rates and foreign exchange rates

In the euro area, inflation and core inflation remained broadly stable in October at 2.1% and 2.4% respectively. According to the European Central Bank (ECB), the disinflationary process is over and inflation will converge downwards towards the ECB's 2% target barring any additional shocks.

In the US, general and core inflation (both 3.0%) remained stubbornly above the Fed's target in September. We expect US import tariffs to further seep into inflation in the coming months. However, this effect is likely to be temporary, reflecting mainly a one-off increase in the price level. Thereafter, inflation is likely to fall back towards the Fed's target.

The ECB confirmed its 2% deposit rate again in October, indicating that it is in a good position, enabling us to conclude that 2% is likely to be the bottom of this interest rate cycle. The deposit rate is likely to remain unchanged at that level for quite some time.

The Fed resumed its easing cycle in September by cutting its policy rate by 25 basis points, followed by another cut of the same size in October. Barring new economic shocks, the Fed is likely to continue its easing cycle until spring 2026. Moreover, the Fed indicated that the process of quantitative tightening will be terminated from December on.

The diverging trend between US and German 10-year rates continued in the third quarter. While US rates have fallen by around 15 basis points since the start of the third quarter, German bond yields remained broadly unchanged on balance. The fall in US rates was due mainly to fears of a cyclical slowdown and related interest rate cuts by the Fed. The recent flight to safe-haven assets also played a role owing to the resurgence of the US-China trade conflict. German 10-year yields did not follow the fall in US yields as the ECB has already completed its easing cycle.

The Czech National Bank (CNB) kept its policy rate unchanged at 3.50% in the third quarter. We also expect this to be the bottom of the CNB's easing cycle. The CNB may 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 as far back as September 2024, and we expect the next rate cut in early 2026 at the earliest. Monetary policy will remain restrictive for quite a while to bring inflation under control. We therefore expect a continuation of the central bank's ‘strong-forint’ policy in the coming quarters. Nevertheless, Hungary's structurally higher inflation relative to the euro area is likely to cause a gradual depreciation of the forint against the euro over time.

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