In his view, the primary risk stemming from the Iranian conflict lies more in its impact on growth than in a sustained resurgence of inflation. While rising energy prices, primarily concentrated in oil, are weighing on household and business sentiment, the situation remains incomparable to the 2022 energy shock. The Eurozone is now less dependent on Middle Eastern oil and is facing neither gas shortages, nor major supply chain disruptions.
Against this backdrop, Neuberger Berman believes the ECB will continue to pursue a data-dependent monetary policy. The asset manager sees no major risk of a return to an inflationary spiral comparable to that seen post-pandemic and anticipates a headline inflation rate below 4% in the Eurozone.
Patrick Barbe further highlights that persistent economic weakness could lead the ECB to loosen its monetary policy in the second half of the year, particularly if tensions in energy markets ease. The manager expects policy rates to settle around 2.25% by the end of 2026.
In fixed income markets, Neuberger Berman remains constructive on Eurozone government bonds. The firm finds current yields on five- and ten-year German Bunds particularly attractive, suggesting that the economic slowdown could foster a gradual easing of medium-term rates.
Neuberger Berman says, "The Eurozone is now less dependent on Middle Eastern oil"
The ECB is expected to maintain a cautious approach amid geopolitical tensions in the Middle East and a slowing European economy, according to Patrick Barbe, Head of European Investment Grade Fixed Income at Neuberger Berman.
