AEW explores how European markets can best deal with the double trouble of lower GDP growth and higher inflation, adopting stagflation as its new base economic scenario.
As above-target inflation endures, Eurozone bond investors have now priced in some rate hikes for 2023 and tapering of quantitative easing for late 2022. AEW’s base case assumes only limited and modest rate rises — given that hikes are ineffective against imported commodity and energy inflation — and that government bond yields will remain lower for longer. The upside and downside scenarios assume more proactive central bank tightening and bond yield normalization.
Post-lockdowns, some normalization is returning to occupier markets. This is evident from a partial reversal from record levels of online sales share as consumers return to physical stores. The most recent U.K. mobility and occupancy data also confirm a return to the office.
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