Tighter Eurozone financial conditions and rising fragmentation risks

Eurozone financial conditions have tightened abruptly since the start of the Ukraine war, supporting our caution on near-term growth. Unless the chances of a quick resolution to the conflict rise, we think conditions will remain pressured in the near term and may even tighten.

Financial conditions are also becoming more heterogenous, with countries in South Europe looking vulnerable. Greece, Italy, Spain, and Portugal have so far seen the largest increases in government bond yields, and the ECB’s accelerated QE tapering will continue to put upward pressure on spreads. But we still expect spreads to remain contained at relatively low levels.

Download our report to learn:

• Whether further tightening is likely
• When we think the ECB will first hike rates
• Which countries we think will be most affected by the changes