These anticipated rate cuts have bolstered market sentiment in Q1 2024. Signs are emerging that the deterioration in investment and credit conditions in the eurozone may have reached their lowest point. However, the repercussions of the sharp increases in policy rates during 2022-2023 are still affecting various sectors, notably in the correction observed in prime commercial real estate (CRE) markets, as per Fitch.
Despite these challenges, Fitch notes a resumption of GDP growth in the eurozone during Q1 2024, although it continues to forecast a modest recovery for the bloc. The resilience of labour markets has notably supported retail borrower performance across developed Europe. This stability has helped contain the rise in arrears in most Fitch-rated EMEA residential mortgage-backed securities (RMBS) and asset-backed securities (ABS), suggesting that any significant deterioration in overall bank asset quality will be limited.
The firm also cautions about the ongoing risks to its baseline assumptions, which include persistent geopolitical tensions, the potential for interest rates to remain high for an extended period, and the risk of unexpectedly weak demand affecting labour markets more severely.
Despite these challenges, the first quarter of 2024 saw more rating upgrades than downgrades in developed Europe, although this varied significantly across different sectors.
ALCHEMPro News Desk (DP)
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