Euro zone growth expected to slow further in face of rising interest rates, survey finds

While euro zone growth is expected to slow further in the face of rising interest rates, the majority of European money mangers believe the continent will avoid recession. That’s according to the latest Bank of America European fund manager survey, a well watched barometer of investor sentiment.

The latest survey indicated that the majority of European money managers (70 per cent) believe European growth will slow in response to monetary tightening, but a majority believe Europe can avoid a recession.

A majority (56 per cent) of investors also expect “demand destruction” in response to deteriorating credit conditions to be the dominant macro theme in the coming months.

And while 95 per cent expect European inflation to decline over the coming 12 months (the highest share on record), a third still see high inflation and hawkish central banks as the biggest tail-risk for markets.

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More than two thirds of investors (67 per cent) see aggressive monetary tightening leading to a loss in US growth momentum (up from 58 per cent last month), while only 39 per cent expect a stronger Chinese economy over the next year (the lowest level since November).

Yet, a majority now expects Europe to avoid a recession, with the proportion of investors expecting one over the next 12 months falling to a one-year low of 37 per cent (down sharply from 58 per cent last month).

The survey also indicated that 72 per cent of investors “expect downside” for the European market over the coming months in response to monetary tightening (up marginally from 70 per cent last month), with 51 per cent projecting downside over the next 12 months (down from 55 per cent).