Notwithstanding their weak outlook for the European economy, many investors believe that the worst of the region’s fiscal crisis is over, finds a new survey from Fitch Ratings.
The rating agency reports that its latest quarterly survey of investors finds that 41% of survey respondents think the worst of the crisis is over, due to strong support from the European Central Bank and policy makers; 30% believe the markets are irrationally exuberant; and, 29% see the current environment as a short-lived period of market calm.
Fitch says that it believes there remains “a stark dichotomy between the continuing recession with rising unemployment across Europe and the rally in financial markets”.
It says that if the market rally is not validated by economic stabilization and progress towards banking union, “the danger is that market volatility will return with a vengeance over the summer, as it did in 2012 and 2011.”
Indeed, investors remain concerned about the economy, it says. Fitch notes 86% of investors said that a prolonged recession poses a high risk to the European credit markets, up from 69% in the last survey.
Also, the survey respondents regard inflation as unlikely, it says, with only 9% of respondents ranking it as a high risk. Fitch sees this as a further indication of “low confidence in economic recovery”. Indeed, 29% of respondents see deflation as a high risk, it adds.
The survey, completed between April 3 and May 7, represents the views of managers of an estimated €8.6 trillion of fixed-income assets.