Volatility returned in Q1, highlighting the need for policymakers to address the underlying issues driving investor uncertainty. At our recent webinar, Capital Economics (CE) focused on the Eurozone, and set out why it might be at a turning point.
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Eurozone at an inflection point

Volatility returned in Q1, highlighting the need for policymakers to address the underlying issues driving investor uncertainty. At our recent webinar, Capital Economics (CE) focused on the Eurozone, and set out why it might be at a turning point.

 

Click below to view the slides from the CE webinar on the outlook for the Eurozone economy.

 

View the slides

 

The outlook for economic growth

In the near term, CE is less optimistic about the Eurozone economy vs consensus, predicting a mild recession in 2023/2024 (1% peak to trough decline), and for unemployment to rise to 7.5%.

 

The outlook for inflation

Eurozone labour compensation per employee has been averaging 4.5% in the last two years, but needs to fall to 3% to match the ECB target of 2% inflation and 1% productivity growth.

 

The outlook for monetary policy

CE thinks that consensus is wrong both about the peak of rates and the pace of future cuts. CE believes the ECB will raise rates to 4%, but then within 12 months find conditions supportive of 2% rate cuts in the following 18 months.

 

The role of Eurozone banks

A banking crisis is unlikely to change the outcome for the economy. Capital and liquidity positions are generally good, but there are idiosyncratic risks. Chance of systemic crisis seems low.

 

How did our funds perform in March?

  Tabula Haitong Asia ex-Japan HY Corp USD Bond ESG (USD) Acc -3.8% Factsheet >
  Tabula EUR IG Bond Paris-aligned Climate (EUR) Acc 🌳 +1.3% Factsheet >
  Tabula EUR HY Bond Paris-aligned Climate (EUR) Acc 🌳* -0.7% Factsheet >
  Tabula US Enhanced Inflation (USD) Acc +2.9% Factsheet >
  Tabula Global IG Credit Curve Steepener (EUR) Acc -0.2% Factsheet >
  Tabula GCC Sovereign Bonds (USD) Acc** +2.0% Factsheet >
* Performance represents the iBoxx MSCI ESG EUR High Yield Paris-Aligned Capped Index.
** Performance represents the ICE Gulf Cooperation Council Government Bond ex-144a Index
 
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