Opportunities on the Horizon: Investing Through a Slowing Economy

Regional previews | WEALTH OUTLOOK 2023 | MID-YEAR EDITION | 66 A better 2024 Fortunately, headline inflation is set to decline going into 2024, contributing to some improvement in consumer confidence, but we’re not anticipating much growth. We are forecasting real GDP growth to average 1.1% in the euro area and the UK in 2024. Despite expected progress in Ukraine’s efforts to regain territory in its upcoming spring offensive, we do not see an imminent end to its war with Russia. A quicker-than-expected resolution of the conflict would likely be a significant positive for risk assets and Europe in particular. Fixed income : Euro area government bond yields likely peaked in March, but we see only a further limited rally in yields given the present stickiness of core inflation and the need for the European Central Bank to defend its price stability mandate. In the UK, yields will likely stay elevated as the government seeks to rebuild some credibility after the hiccup from the 2022 autumn budget ( FIGURE 1 ) . Equities : Both Europe ex-UK and UK equities are trading at low valuations compared to the US market. Within those markets, we are overweight the consumer discretionary sector and see some short-term upside potential in financials due to a stronger euro and improving net interest margins. FIGURE 1 : Euro and UK: Equity Market Indices and 2-Year Sovereign Bond Yields -1 0 1 2 3 4 5 60 70 80 90 100 110 120 130 2-year yields (%) Performance (1-Jan-19 = 100) Stoxx 50 FTSE 100 German Bund (right) UK Gilt (right) Jan-20 May-20 Sep-20 Jan-22 May-22 Sep-22 Jan-23 May-23 Sep-21 Jan-21 May-21 Source: Bloomberg, as of May 31, 2023. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future results. Real results may vary.