Newsroom
According to an interview by Panayiotis Rougalas, Nick Hill highlighted the macroeconomic and geopolitical challenges shaping the global financial environment at the 20th Economist Conference in Nicosia. The escalating competition between the US and China, alongside rising tensions in regions like Ukraine and the Middle East, are poised to disrupt global trade and financial interconnectivity.
Hill predicts a slow cyclical recovery for Europe, driven by looser financial conditions and household investments. However, risks remain, particularly as growth in Germany stagnates near pre-pandemic levels, and the economic momentum in France and Italy stays weak.
The European Central Bank (ECB) is expected to accelerate its easing policies, starting with a 50-basis-point rate cut in December. Additional reductions may follow into 2025, potentially turning more aggressive if economic conditions worsen further.
Hill emphasized that the ongoing digital transformation in banking presents a delicate balance of significant benefits and inherent risks. Advanced technologies like AI and automation are revolutionizing efficiency by expediting data processing and enhancing analytics. Tools like large language models are streamlining operations, boosting productivity, and cutting costs.
Moreover, digital advancements are improving risk management by enabling institutions to pinpoint vulnerabilities with greater precision.
However, these initiatives come with substantial challenges, including the need for robust cybersecurity measures, large-scale investment in infrastructure, and navigating regulatory uncertainties. Hill underscored that success hinges on aligning technological adoption with strategic goals to deliver scalable benefits.
The overall asset quality of EU banks remains stable, with a Non-Performing Loan (NPL) ratio of 1.9% at mid-2024, unchanged from the previous year. However, specific sectors like small and medium enterprises (SMEs) and commercial real estate (CRE) have shown slight increases in non-performing loans.
CRE loans face ongoing pressure due to substantial debt clusters maturing in 2025 and 2026, which will elevate debt servicing costs. Nevertheless, stress tests indicate that EU banks are well-capitalized to withstand these challenges.
Geopolitical tensions, including the Russia-Ukraine conflict and disputes in the South China Sea, are key risks to macroeconomic stability. Hill highlighted the growing geoeconomic fragmentation as a threat to global growth, potentially dividing the world into competing geopolitical blocs.
Moody’s has already downgraded Israel’s sovereign and bank ratings this year due to heightened geopolitical risks. Yet, the resilience of Israeli banks has been supported by higher interest rates, enhanced profitability, and stable asset quality.
Environmental, social, and governance (ESG) risks are increasingly influencing Moody’s ratings. Governance issues were the leading factor in 15% of the firm’s rating actions last year. Hill stressed that integrating ESG considerations into evaluations remains a priority, despite challenges in quantifying these risks.
While financial conditions in Europe may improve gradually, uncertainties from geopolitical tensions and digital transformation challenges remain significant. Nick Hill’s insights offer a sobering look at the complexities shaping the global economic outlook for 2025 and beyond.
To read more of the interview by Panayiotis Rougalas and gain full access to in-depth reports (in Greek), subscribe now to Kathimerini's print edition and stay informed with comprehensive coverage on this and more!
