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Europe Insights

The path after crises
31 July 2023
    Articles
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    Summary

    This edition of Europe Insights explores the path for Europe after periods of crisis. Europe’s net travel balance has kept positive and has now fully recovered to pre-pandemic levels with the help of domestic EU travellers. In the meanwhile, the financial industry seems to remain haunted by the potential risk of a financial crisis, and the impact of the Ukraine-Russia crisis on the stock market has shown to be relatively contained.

    What is the future of tourism in Europe?

    • Over the past 4 years, and even at times of crisis, Europe’s net travel balance has kept positive and has now fully recovered to 2019 levels with the help of domestic EU travellers, who generated EU travel receipts 40 per cent above 2019 levels at the end of 2022
    • This period demonstrated how domestic travellers can generate high value that could potentially offset the losses of international visitors
    • The future scope for tourism growth in Europe is vast. New tools including mobile applications, online platform and translation devices shape the way tourists travel, with more efficient and easy access to accommodation and personalised experiences. Changing patterns in tourism and digitisation offer opportunities in visitors’ experiences, through tracking via the intellectual property (IP) ecosystem

    Fixed Income: The aftermath of the bank crisis

    • Though overall market volatility has reduced, and credit spreads have compressed since the recent banking turmoil, the gap between financials and industrials spreads remains twice as high as its 5-year average
    • Overall, the financial industry seems to remain haunted by the potential risk of a financial crisis – this could come from the impact of higher interest rates on local real estate markets or a more severe than expected recession
    • Relative-value opportunities can arise within European fixed income markets from the caution surrounding the financial sector

    Equities: After the energy crisis, what comes next?

    • The impact of the Ukraine-Russia crisis on energy prices and the stock market was relatively contained – energy prices are now below pre-crisis levels and stock markets are up
    • The lower energy prices are partially attributable to a growing consensus around the imminency of a global recession. But stock markets, still hovering around their all-time highs, do not seem to be discounting this eventuality
    • Cyclically adjusted valuations are lower than what could be expected at this point of the profit cycle, but the combination of central bank tightening, corporate earnings weakness and valuation concerns in the US could prove tough to overcome

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