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Europe Insights

Unusual patterns
21 December 2023
    Articles
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    Summary

    This edition of Europe Insights provides valuable insights on the latest European market and macroeconomic developments.

    This month, the publication discusses:

    • What factors contribute to the disparity in the household savings pattern between Europe and the US?
    • Will refinancing the ‘COVID Maturity Wall’ pose a threat to global credit markets?
    • What does the corporate earnings post-pandemic tell us about the outlook for the upcoming year?

    Savings in Europe versus the US

    • Eurozone household savings rates average 15 percent, contrasting with the US’s 8 percent, displaying a structural shift influenced by improved credit conditions and globalisation
    • The economic cycle, uncertainty, and structural factors shape household saving behaviour. The eurozone’s lower growth and higher unemployment contribute to the saving gap with the US
    • Intentions for increased savings and reduced major purchases signal a potential prolonged elevated saving rate in the eurozone, with OECD estimates suggesting persistently higher rates compared to pre-COVID, influencing consumer spending and fiscal deficits

    Fixed Income: Will refinancing the ‘COVID Maturity Wall’ be an issue?

    • Opportunistic funding at low rates during and just after the pandemic was a prudent step at the time, but it has created a ‘maturity wall’ in 2024 and 2025 which could create refinancing difficulties at the higher rates now prevailing
    • We do not believe that there will be a widespread problem, but there are likely to be pockets of pressure which may pose risks to certain sectors

    Equities: Deciphering the corporate earnings

    • After a robust post-pandemic recover, European corporate earnings have encountered challenges, with negative 12-month forward earnings estimates and downgrades in key growth sectors like banks and energy
    • European corporate margins have declined, and economic indicators like composite PMI and manufacturing have experienced consecutive contractionary months
    • A cautiously optimistic earnings outlook for 2024 is contingent upon a turnaround in manufacturing dependent segments or regions such as Germany. Sectors like IT and Consumer Discretionary maintain momentum, while challenges persist in Healthcare, Materials, Energy, and Consumer Staples

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