Key takeaways
• Global growth pessimism is fading, with a soft landing once more becoming consensus among investors, but tariff risks remain
• German stimulus underpins European growth optimism, keeping the gap to global growth expectations close to the recent highs
• Investors stay bullish on EU equities outright and rel. to the US, with banks and German equities the most popular positions
Global growth pessimism is fading but tariff risks remain
A net 46% of survey participants think that the global economy is set to weaken over the coming year, down from 59% last month and a record 82% in April, on the back of a fading tariff threat. A soft landing is once more becoming consensus, with the scenario seen as the most likely outcome for the global economy by 66% of investors, up from 37% in April, when investors were bracing for a hard landing. Investors regard a strong US consumer as the biggest upside risk for global growth, while the Trump policy mix is seen as the largest downside risk. A trade war that triggers a global recession is considered the biggest tail-risk by around half of the respondents and close to two-thirds think only very little of the tariff shock is already in the price.
German stimulus underpins European growth optimism
A net 29% of respondents expect stronger European growth over the coming twelve months, little changed from last month and keeping the gap to global growth expectations close to the recent record highs, helped by expectations for German fiscal stimulus. However, when asked directly whether Europe’s economy and markets can decouple from a softening global growth backdrop, a growing number of clients express concerns about the fallout from US policy headwinds. Investors are sanguine on the European inflation outlook, with 29% seeing scope for European inflation to decline over the coming twelve months, while a net 13% expect inflation to rise globally over the same period.
Bullish on EU equities – outright and relative to the US
A net 34% expect upside for European equities over the coming months, broadly unchanged from last month, while the net share expecting upside over the coming twelve months has risen back to the February high of 75%. A net 61% expect 12-month forward EPS in Europe to rise, up sharply from 38% last month. A net 34% say they are overweight European equities relative to their benchmark, close to a four-year high, while a net 36% say they are underweight US equities, close to a two-year high. A plurality of 43% see reducing equity exposure by too much and thus missing out on a potential further rise in equities as the biggest risk when making portfolio decisions.
Domestics favoured, with banks the most popular sector
A net 18% of respondents expect upside for European cyclicals relative to defensives, up from 3% last month. Banks remain the top consensus overweight, with 39% of investors saying they are overweight (up from 28% last month), followed by utilities (25%) and insurance (18%), all domestically-focused sectors. Autos, chemicals and retail are the top consensus underweights. Among countries, Germany remains the most liked, while France is the most unloved.