Financial services giant Deloitte has written that inflation growth across the continent is set to abate following two years.
The firm writes in its EMEA Marketbeat Q2 2024 that the disinflationary period in Europe is advanced following recessions in a number of nations, but continues with inflation at 2.6 per cent, around 0.6 percentage points higher than the European Central Bank’s (ECB) target.
It wrote: “While above the 2% target of the European Central Bank (ECB) and Bank of England (BoE) this reflects a significant reduction on the recent highs and comes at a time when European countries are showing gradual signs of recovery, albeit at varying rates. Notably, the economic expansion of southern EU countries continues to outpace growth in northern and western Europe, with countries such as Spain anticipating GDP growth of 2.1%, while France and Germany’s GDP growth is expected to reach 0.7% and 0.1% respectively by the end of 2024.”
Deloitte took the opportunity to look forwards and said that further interest rate reductions in 2024 are expected to increase transactional activity, as the market transitions from the ‘wait and see’ approach of the last 24 months. Currently driving the market, it said, are shifting interest rates, elections across the continent, and the current conflicts in Ukraine and the Middle East.
In terms of financing, Deloitte said continued high interest rates remained despite their overall reduction.
It wrote: “Against this backdrop, some lenders are prioritising helping existing borrowers to manage their current exposures rather than actively seeking new funding opportunities, while others are displaying increased appetite to lend to make up for reduced lending in 2023. Most lenders remain reluctant to lower their expectations regarding equity and covenant requirements though and with some borrowers unable to make up for reduced borrowing capacity by injecting additional equity we are seeing challenges with financing/refinancing some business plans.”
It added: “Real estate investment activity has been gradually gaining momentum as demand and supply slowly realign. Furthermore, the willingness of certain lenders to deploy money (even if only very selectively) has mildly stimulated the investment market for borrowers with sufficient equity to support their projects. Still, finding price equilibrium in larger real estate transactions remains difficult.”
