Update: 14 November 2019
Our view on interest rates and foreign exchange rates:
A weaker economic outlook with elevated risks and below-target inflation levels have led to a shift in major central banks’ forward guidance towards additional or renewed monetary stimuli. Following the rate cuts earlier this year, we expect the Fed to keep its policy rate constant this year and the next year. Since euro-area inflation will remain below the ECB’s medium-term target and risk factors, such as trade conflicts, are negatively impacting the momentum of European growth, the ECB will most likely keep monetary policy very accommodative in the years to come.
Flight-to-quality and safe-haven effects, subdued European (core) inflation and, in particular, a dovish ECB will continue to limit the upward potential for longer-term interest rates and intra-EMU sovereign spreads.
The Czech National Bank (CNB) tightened its monetary policy with a somewhat sooner-than-expected rate hike earlier this year (+25 basis points to 2% on 2 May), reflecting an environment of buoyant Czech growth and inflation.
Our view on economic growth:
In line with global economic developments, the European economy is currently slowing down. Decreasing unemployment rates and growing labour shortages in some European economies, combined with solid wage inflation, are likely to continue underpinning private consumption. Investment is also likely to remain supportive for growth. The main factors that could substantially impede European economic sentiment and growth remain the risk of further economic deglobalisation, including an escalation of trade conflicts, Brexit and political turmoil in some euro-area countries..
At present, a number of items are considered to constitute the main challenges for the financial sector. These relate to recent macroeconomic and political developments, such as Brexit and trade conflicts, all of which affect global and European economies, including KBC’s home markets. Economic growth and interest rate forecasts have been lowered, making it increasingly likely that the low interest rate environment will persist for longer than originally anticipated. Regulatory and compliance risks (including anti-money laundering regulations and GDPR) 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-related risks are becoming increasingly prevalent. Finally, 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
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.