Key Takeaways
- European green shoots are emerging more gradually than anticipated.
- Labour markets show signs of weakening, with unemployment beginning to rise in select countries.
- Cracks are showing in highly leveraged sectors as high yield sells off while investment grade remains tight.
- Fiscal pressures intensify, with governments facing budgetary challenges and the potential reemergence of inflation as they look to balance the books.
- Sticky inflation remains a problem, keeping the risk of a renewed inflationary cycle in focus.
Forward View
Growth Outlook: Slowly Improving
Although we are still confident that a European recovery will continue to develop, the region remains in a low and slow return to growth. The stimulus of low rates (the lowest in the G-10 outside of Japan) combined with increased government spending should help stimulate the region. In particular, German reinvigoration should filter throughout the bloc to support…