Like other developed economies, the Euro area appears more "normal" than at any time since the pandemic began.
Headline inflation has returned to the European Central Bank's (ECB) target. Real economic activity grew at a trend-like pace in the first half of the year, and credit growth has stabilized. Fiscal deficits have generally shrunk. Additionally, monetary policy is beginning to normalise, with the ECB cutting interest rates three times this year already.
Nonetheless, the outlook remains fragile. Although we do not foresee an imminent recession, the risk of one remains elevated, not least given the uncertainty around the global trade outlook following the U.S. election.
Against this backdrop, fixed income investments in Europe continue to look attractive, say PIMCO experts. While the pricing of short-term interest rates for the ECB look broadly fair, we expect the yield curve to continue steepening as monetary policy normalizes. Thus, long-term interest rates may increase relative to short-term rates.
Read more on the outlook for bonds in 2025 in this exclusive Spotlight in association with PIMCO. By clicking "Read Here" below you agree to the data protection statement below.
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