Markets on the move : euro strengthens as American dominance wanes
Midyear Economic & Investment Outlook
A new study by Chief Economist Koen De Leus reveals that Belgium is one of the countries most vulnerable to the rising costs associated with an ageing population. Meanwhile, the euro is gaining ground, partly due to declining capital flows into dollar assets and increased investment in European assets. This trend is one reason why Chief Strategist Philippe Gijsels talks about the end of American exceptionalism; a development that will have consequences for technology stocks – mainly American – among others. Finally, market volatility remains high, though there is growing optimism around commodities.
2025-06-12 Slideshow MEO 2025.pdf
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BNP Paribas Fortis is publishing an update of its Ageing Vulnerability index[1], first launched in 2023. The index uses five parameters[2] to assess Belgium’s sensitivity to the financial pressures of an ageing population and compares it to 17 other industrialised countries.
Belgium is highly vulnerable to ageing
Belgium ranks among the most vulnerable countries. A similar study by the Centre for Strategic and International Studies in 2003 classified Belgium as moderately vulnerable. This topic has taken on new urgency in today’s global economy, and the International Monetary Fund recently dedicated an entire chapter of its World Economic Outlook to rising pension costs in both developed and developing nations.
“The latest version of our ageing vulnerability index shows Scandinavian countries performing well, while Anglo-Saxon countries demonstrate low to moderate vulnerability,” says Koen De Leus. “At the bottom of the ranking, alongside several southern European countries, is Belgium. While other countries implemented reforms to contain ageing-related costs, Belgium did not. As a result, we are falling behind.”
2025 Ageing Vulnerability Index ranking – from least to most vulnerable:
| 7. Netherlands | 13 Luxembourg |
2. Sweden | 8. Norway | 14. Portugal |
3. Denmark | 9. United Kingdom | 15. Japan |
4. Australia | 10. United States | 16. Belgium |
5. Canada | 11. Germany | 17. Italy |
6. Ireland | 12. France | 18. Spain |
Key findings from the study:
- Government debt is at its highest average level since the Second World War.
- Anglo-Saxon countries still have room to raise public revenues, unlike many European countries. Tax burdens in Scandinavian countries, as well as in Belgium and France, are already high.
- The dependency ratio will rise most steeply in southern European countries over the coming decades.
- In most European countries, government pensions account for more than 75% of retirement income. In contrast, most Anglo-Saxon countries (and the Netherlands) remain below 50% due to widespread corporate pension plans.
- The present value of additional social security spending from 2024 to 2050 would more than double US national debt if no reforms were enacted. Spain and Belgium also perform poorly in this respect.
“The combination of a precarious fiscal position and rapidly rising ageing costs requires Belgium to implement structural reforms swiftly and effectively. Continuing on the current path is not sustainable,” concludes Koen De Leus.
Ageing is not the only concern for the Belgian economy, geopolitical uncertainty is also weighing on the business climate. Companies are scaling back investments, and the labour market continues to cool, with unemployment expected to peak at 6.5% by the end of 2026. However, the property market is slowly regaining momentum: BNP Paribas Fortis forecasts prices to increase by 2.8% in 2025. Against this complex backdrop, the De Wever government is beginning its fiscal consolidation efforts. Job creation will be crucial to closing the budget deficit. However, achieving the employment target rate of 80% seems unrealistic. The required job creation – almost 500,000 new jobs – is nearly double the historical peak. Meanwhile, interest expenses continue to climb. The interest snowball is gaining pace, pushing the debt ratio up by two percentage points per year. |
A strong euro
Global uncertainty is also affecting macroeconomic indicators, most notably the U.S. dollar. It is weakening in favour of the euro, among other currencies. At the start of 2025, most analysts expected the euro and dollar to reach parity. Today, however, the euro has considerably risen in relation to the dollar, with room for further growth. One key reason for this is the current overweighting of dollar-denominated assets in investment portfolios. Even a partial shift towards European assets would provide significant support for the euro.
This rebalancing of portfolios is also being driven by Europe’s post-Covid macroeconomic strategy, which is more focused on growth. Expansionary fiscal policies and structurally tight labour markets are accelerating the European economy and pushing up interest rates. In order to attract more investment, Europe needs deeper and more liquid capital markets. This is why the EU is pushing for the development of a Capital Markets Union, or a savings and investment union.
Insurers and pension funds are expected to provide the critical mass needed to ensure market depth and liquidity for the Capital Markets Union. To this end, Europe is relaxing the rules for life insurers buying securitised[1] loans. It is also renewing efforts to launch pan-European pensions and expand corporate pension schemes. The next step towards a more integrated Europe could be a joint issuance of Eurobonds. If not all member states support this, a ‘coalition of the willing’ could take the lead instead. All of these efforts should push the euro to around U.S. $1.18 by the end of this year and U.S. $1.22 by end-2026.
The end of American exceptionalism
For years, the world queued up to finance the growing U.S. budget deficit. Trillions of dollars in capital also flowed into the U.S. from global investors. Consequently, American stocks now account for 75% of the MSCI World Index. The dollar has become the world’s reserve currency and a safe haven in times of crisis. This phenomenon is known as American exceptionalism.
In the first half of 2025, confidence in the United States seems to have declined. Investment in U.S. government bonds and equities has fallen, and American assets have underperformed since the start of the year.
“It would be an exaggeration to claim that the dollar is losing its reserve status,” says Philippe Gijsels. “There is currently no viable alternative. However, we may be seeing the beginning of a significant trend in which American assets lose strength and capital flows become more evenly distributed around the world.”
Ongoing market volatility
We are currently in a period described by Neil Howe as a ‘fourth turning’[2]: a time marked by geopolitical uncertainty and conflict, during which parts of the existing world order are dismantled. According to Howe, a ‘first turning’ – a rebuilding of that order – will follow sometime around 2030. This concept helps to put today’s global political events into context.
Geopolitical and economic uncertainty will inevitably continue to drive market volatility. Philippe Gijsels refers to The New World Economy[3], the book he co-authored with Koen De Leus:
“In our book, we talk about ‘multi-globalisation.’ Due to this fragmentation, it is becoming increasingly difficult to speak of a unified global economic cycle. The major economic blocs – the U.S., Europe, Japan and China – are no longer moving at the same pace or in the same direction. Central bank policies may also begin to diverge, leading to major shifts in equities, currencies, commodities and interest rates.”
Growth, inflation and interest rates United States President Trump brought macroeconomic uncertainty. Growth in the U.S. is projected to halve to 1.5% 2025, and to stay at that level in 2026. Fortunately, reciprocal tariffs have been suspended -for now-, reducing the likelihood of a full-blown recession. U.S. inflation remains above 3%. The Federal Reserve has limited scope to manoeuvre on interest rates due to persistently high inflation expectations. However, slowing growth and rising unemployment are expected to prompt action with interest rates likely to fall from 4.5% today to 3.5% by end-2026. Europe In the euro area, the economic impact is relatively modest. Growth is picking up slowly, with forecasts of 1.1% in 2025 and 1.3% in 2026. The structural shift towards greater autonomy will ultimately lead to higher growth and inflation. Germany’s €500 billion investment plan will play a key role in this development. Inflation in Europe is expected to fall close to the target of 2%. This will enable the European Central Bank (ECB) to lower rates further to 1.75% by end-2025. As the German stimulus begins to take effect in 2026, the ECB is expected to raise rates again, this time to 2.25%. Belgium Following stronger-than-expected growth in the first quarter of 2025, the Belgian economy is expected to slow in the current quarter. Our full-year forecasts are at 1.1% growth for 2025 and 1.2% for 2026. Inflation is projected to be 2.9% in 2025 and 1.8% in 2026. |
Commodities Given the current economic context, gold and silver are expected to perform well. Industrial metals are also benefiting from strong demand driven by the energy transition. A weaker U.S. dollar will further support the value of key materials such as copper, lithium and nickel. BNP Paribas Fortis expects commodities to perform strongly in the second half of 2025, although volatility is expected to remain high. |
Technology stocks So far in 2025, the ‘Magnificent 7’ (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) have underperformed compared to previous years. This decline in U.S. tech stocks is closely linked to the waning influence of American exceptionalism. When building asset allocations, it is worth reassessing the weight of U.S. equities in general, and technology stocks in particular. Could a European ‘renaissance’ be underway, prompting investors to increase their exposure to European assets? The answer lies in balance. A diversified portfolio focused on quality will be essential. In a world of structurally higher inflation, interest rates and commodity prices, the gap between strong and weak performers will only widen. Finally, the artificial intelligence and quantum technology revolution represents a major opportunity. And when it comes to technology, the United States still leads the way. |
NOTE: this press release was written on 5 June 2025.
1 More details about the index can be found in the attached slides.
2 Level of net government revenue; (2) Level of net government debt; (3) The increase in the dependency ratio; (4) The share of state pensions in total pension liabilities; (5) The actual value of all additional pension and healthcare expenditure between 2024 and 2050.
3 Securitisation is a process by which a credit provider, such as a bank, repackages the loans it holds (e.g. mortgages) into securities that can be sold to investors. These investors then receive the income generated by the underlying loans.
4 Howe, N. (2023). The Fourth Turning Is Here: What the Seasons of History Tell Us about How and When This Crisis Will End. India: Simon & Schuster.
5 De Leus, K., & Gijsels, P. (2023). De nieuwe wereldeconomie: Investeren in tijden van superinflatie, hyperinnovatie en klimaattransitie/The New World Economy in 5 Trends: Investing in times of superinflation, hyperinnovation and climate transition. Belgium: Terra – Lannoo, Uitgeverij.
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