Market outlook

Update: 8 February 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 has 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 conflict in Gaza/Israel and the Red Sea. All these risks affect global, but especially, European economies, including KBC’s home markets. Rising interest rates were also the main source of some turmoil in the financial sector in the spring of 2023, although that has abated somewhat. 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 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 exceptionally strong quarter-on-quarter growth in the third quarter of 2023 (1.2% non-annualised), US growth slowed somewhat in the fourth quarter to 0.8% (non-annualised). This stronger-than-expected growth was mainly attributable to robust domestic demand, in particular to strong private consumption growth which was supported by persistently solid job creation and a low unemployment rate. Due in part to the impact of the past Fed tightening cycle, quarter-on-quarter growth is expected to stagnate in the first quarter of 2024, before gradually returning to a positive growth path again.

After posting a slightly negative quarter-on-quarter growth in the third quarter of 2023 (-0.1%), the euro area economy stagnated in the fourth quarter (quarterly growth of 0%), due mainly to the impact of the ECB’s tightening cycle on credit growth and the weakness in the manufacturing sector. From the first quarter of 2024 onwards, quarterly growth is expected to marginally and gradually rebound, with the recovery gathering pace towards the second half of 2024.

Quarter-on-quarter growth in the fourth quarter in Belgium amounted to 0.4%. Relatively strong domestic demand (based on private consumption and corporate investment) most likely counterbalanced the continuing weakness of net exports. For 2024, we expect growth to remain broadly in line with that of the euro area. Following a very weak third quarter (-0.6% quarter-on-quarter), the Czech economy grew again by 0.2% in the fourth quarter of 2023. The current relative weakness is still the result of very sluggish private consumption and a weak manufacturing sector. We expect a recovery to meaningfully positive quarter-on-quarter growth from the first quarter of 2024 on. Based on our latest estimates, quarter-on-quarter growth for the fourth quarter in KBC’s other Central European home markets was also modest (Bulgaria 0.2%, Slovakia 0.2% and Hungary 0.7%). As is the case for the euro area economy, growth is expected to gradually rebound and accelerate 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 of supply chain disruptions and higher energy and commodity prices. Additional risks include the election calendar for 2024 and the increasing cost of financing high levels of sovereign debt in the euro area in the context of subdued short-term economic growth, the run-up to the re-activation of the Stability and Growth Pact and the announced phasing out of PEPP reinvestments by the ECB.

Our view on interest rates and foreign exchange rates

Both the Fed and the ECB are expected to start a rate-cutting cycle in the course of 2024. In the background, the run-down of the Fed’s and ECB’s balance sheet (Quantitative Tightening or QT) continues. While the Fed had started discussing potentially slowing down the pace of QT in December 2023, the ECB is planning to increase the pace of its QT by reducing the amount of monthly reinvestments of maturing assets in its Pandemic Emergency Purchase Programme (PEPP) portfolio from the second half of 2024 on, and by ending reinvestments altogether from 2025 on.

After their sharp rise during the third quarter of 2023, both 10-year US and German government bond yields corrected sharply downwards towards the end of the fourth quarter. US and German yields temporarily peaked at about 5% and 3%, respectively, before falling abruptly below 4% and 2%, respectively, towards the end of the fourth quarter. A modest upward correction occurred in January 2024.

With the market gradually becoming convinced that the Fed had reached the peak of its policy rate cycle, declining interest rate support led to a weakening of the US dollar against the euro during the fourth quarter. On balance, the dollar depreciated from about 1.05 to approximately 1.10 USD per EUR at the end of 2023. Based on valuation fundamentals, we expect the US dollar to gradually weaken further in the course of 2024.

During the fourth quarter, the Czech koruna (CZK) continued to depreciate against the euro, largely driven by the (expected) start of policy rate cuts. In the fourth quarter, the Czech National Bank (CNB) cut the policy rate to 6.75% and further rate cuts will follow in 2024. Moreover, the abandonment by the CNB of its FX interventions continued to weigh on the CZK. We expect the current weakness of the Koruna to persist in early 2024 before strengthening again against the euro when the ECB starts easing its policy.

During the fourth quarter, the National Bank of Hungary (NBH) continued its rate-cutting cycle by lowering its base rate by 75 basis points on three occasions, taking it to 10.75% by the end of 2023. At the end of January 2024, the NBH further lowered its base rate by 75 basis points to 10%. Additional rate cuts by the NBH will follow, which will probably leave the base rate at about 6.25% by the end of the year. At the same time, it will keep the short-term real interest rate sufficiently positive to keep inflation on a downward path.

The exchange rate of the Hungarian forint against the euro was again quite volatile during the fourth quarter of 2023. On balance, the forint appreciated from around 390 to 383 forints per euro. In early January the appreciation continued, helped by the release of frozen EU funds. Against the background of still relevant inflation differentials with the euro area and the NBH’s ongoing easing cycle, the forint is expected to start weakening again from current levels during 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.