2025 Outlook: Global Slowdown & European Credit Resilience
Global growth is expected to slow in 2025, but European credit markets demonstrate surprising strength.This is the key takeaway from our analysis of the economic outlook,where escalating trade tensions and renewed tariffs cast a shadow over global recovery. Despite a global GDP forecast downgrade, European credit markets show resilience, fueled by robust corporate balance sheets and ample liquidity. We examine the impact of tariffs across sectors, revealing that investment-grade sectors, like financials and utilities, offer greater stability than high-yield sectors. Investors should focus on strategic portfolio positioning to weather this market. News Directory 3 shares how UBS recommends long exposure to the iTraxx Europe Main Index, anticipating stable credit spreads. Understanding these European credit markets trends is critical for navigating the evolving landscape. Discover what’s next as volatility looms in July when tariff suspensions expire.
European Credit Markets Show Strength Amid Global Slowdown
Updated June 10, 2025
The global economy faces a critical juncture in 2025 as trade tensions rise and hopes for a rapid recovery diminish. While overall growth is projected to slow, European private credit markets are displaying unexpected resilience.
Despite concerns about the economic fallout from renewed U.S. tariffs, some institutions remain cautiously optimistic about the strength of specific sectors. The OECD, among othre global bodies, has revised its global GDP growth forecast downward to 2.9% from an initial 3.1%, citing increasing protectionist pressures and U.S.-led tariffs that disrupt trade and supply chains.
The U.S.,under President Trump,has revived tariff threats against key trading partners,notably the european Union. Although some duties are currently suspended, the ongoing threat of their reinstatement continues to dampen market confidence. Europe remains at the forefront of these trade tensions, facing potential tariffs on crucial industries like automotive and steel.
UBS analysts suggest that European private credit markets have shown remarkable resilience in the first half of 2025, supported by strong corporate balance sheets, low default rates, ample institutional liquidity, and supportive technical conditions that limit volatility. They anticipate that credit spreads will remain stable, absent significant geopolitical or economic shocks.
The impact of tariffs varies across sectors. Investment-grade sectors, such as financials and utilities, demonstrate greater resilience, while high-yield sectors like energy and natural resources are more vulnerable to volatility. This divergence highlights the importance of strategic portfolio positioning, favoring assets wiht solid credit fundamentals.
UBS expects credit spreads to remain within a contained range, barring major geopolitical or economic disruptions.
What’s next
Investors should monitor sector-specific risks and political developments to navigate the evolving landscape and capitalize on opportunities in European credit markets. Volatility is expected to increase in July when the temporary suspension of Trump’s tariffs is set to expire.