Market outlook

Update: 16 May 2024

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 the mostly indirect, but lingering, impact of the war in Ukraine, including the delayed effects of the increase in energy and commodity prices and the supply-side shortages it triggered. This led to a surge in inflation, resulting in upward pressure on interest rates, lower growth prospects (or even fears of a recession) and some concerns about the creditworthiness of counterparties in the economic sectors most exposed. Geopolitical risks remain elevated, as evidenced by the escalating conflict in Gaza/Israel and the Middle East. A significant number of elections in 2024 across the world, including in the US, are adding to the geopolitical uncertainty. All these risks affect global, but especially, European economies, including KBC’s home markets. Regulatory and compliance risks (including 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 has 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

Our view on economic growth

After strong quarter-on-quarter growth of 0.8% in the fourth quarter (non-annualised), US growth slowed in the first quarter of 2024 to 0.4%. This still solid growth rate was mainly attributable to robust domestic demand, in particular private consumption growth, which was supported by persistently robust job creation and a remarkably low unemployment rate. Quarter-on-quarter growth is expected to slow further in the second quarter of 2024.

After the mild contraction in the fourth quarter of 2023 (-0.1%), euro area growth in the first quarter became positive again (0.3%). The manufacturing sector exhibited persistent weakness, while the service sector displayed tentative signs of recovery. From the second half of 2024 onwards, quarterly growth is expected to gradually increase, driven mainly by domestic consumption that benefits from falling inflation and the related increase in real wages.

Quarter-on-quarter growth in the first quarter in Belgium amounted to 0.3%, the same as in the previous quarter. Relatively strong domestic demand outweighed the negative contribution to growth of net exports. For the remainder of 2024, we expect growth to remain broadly in line with that of the euro area. Meanwhile, the Czech economy continued its recovery in the first quarter of 2024 (+0.5% quarter-on-quarter), a slightly faster rate than in the previous quarter. The stabilising manufacturing sector and private consumption growth supported by real wage growth thanks to lower inflation contributed to this performance. Based on our latest estimates, growth rates for the first quarter in our other Central European home markets also point to the recovery gaining traction (Bulgaria 0.5%, Slovakia 0.6% and Hungary 0.8%) with growth expected to gradually pick up more speed in the course of 2024.

The main risks to our short-term outlook for European growth include the global weakness of the manufacturing sector, particularly its effect on the German economy. Moreover, current geopolitical tensions pose risks in the form of more protectionism, supply chain disruptions and higher energy and commodity prices. In addition, political instability risks (various upcoming elections) and the impact of the government budget discussions for 2025 in the run-up to the re-activation of the EU Stability and Growth Pact might impact growth and risk premiums on sovereign debt in a number of European economies.

Our view on interest rates and foreign exchange rates

In the first quarter, the disinflationary trend in the euro area continued, while the latest US inflation data pointed rather more to a pause in this process. Consequently, the ECB is still expected to go ahead with the start of its rate-cutting cycle in mid-2024. The timing of the Fed’s first rate cut and the overall number of cuts remains more uncertain and will crucially hinge on how sustainable the central bank assesses the further course of the disinflationary process towards the inflation target. In the background, the run-down of the Fed’s and ECB’s balance sheet (Quantitative Tightening) continues. Moreover, the ECB will end reinvesting maturing assets in its PEPP portfolio from 2025 on, after a transition period in the second half of 2024.

As the end of the Fed’s and ECB’s monetary tightening cycle became apparent in the fourth quarter of 2023, benchmark US and German bond yields fell sharply. Since early 2024, however, US and German bond yields have been steadily rising again as markets became increasingly aware that the easing cycle of short-term interest rates in 2024 would start later – and be more limited – than initially expected (especially in the US). This pushed up US and German 10-year bond yields to about 4.7% and 2.6% respectively in the second half of April 2024, with the US-German yield spread sharply widening to levels not seen since the start of the pandemic.

The sizeable growth differential, as well as the increased short-term and long-term interest rate differentials between the US and the euro area, led to a substantial strengthening of the US dollar against the euro. However, based on long-term fundamentals, we expect the US dollar to gradually weaken again in the course of 2024.

In early May, the Czech National Bank (CNB) lowered its policy rate by a further 50 basis points to 5.25%. Since the beginning of the year, the Czech koruna has depreciated against the euro. Nevertheless, it is likely to regain some ground against the euro in the remainder of 2024, thanks in part to the expected start of the ECB rate-cutting cycle in mid-2024.

Since the beginning of 2024, the National Bank of Hungary has cut its policy rate (base rate) four times, bringing it to 7.75%. Additional modest rate cuts are likely to follow. The exchange rate of the Hungarian forint against the euro depreciated during the first quarter of 2024. Driven by the structural inflation differential with the euro area, the forint is expected to continue depreciating in the course of 2024.


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.