Allianz

03 May 2024:

➦ Higher rates by a fiscal thread, good Eurozone news before the Eurovision, and delayed normalization for cross-asset correlations

• Eurozone: Green shoots for growth just in time for the Eurovision. Just in time for the Eurovision in Malmö 7-11 May, the Eurozone has emerged from five quarters of stagnation (+0.3% q/q in Q1), indicating the start of a gradual economic recovery. Meanwhile, ongoing disinflation continues in line with expectations, with core inflation dropping to 2.7% – the lowest level in more than two years. However, the economy continues to show a clear divide, with a thriving services sector and a lagging goods sector, each impacting overall growth and inflation in distinct ways. In this context, we continue to expect the ECB to initiate two rate cuts this year, starting as early as June.

➦ Ashes to ashes, carbon to soil

• The biodiversity financing gap exists mainly due to a knowledge gap: the valuation of ecosystem services. Ecosystem services are the direct and indirect contributions ecosystems (known as natural capital) provide for human wellbeing and quality of life. This can be in a practical sense, such as providing food and water or regulating the climate. We understand that the productivity and regulatory functions of ecosystems are of great value to our economic sectors, but we have little understanding of the price tag of this value, let alone the abatement costs (and benefits) of declining ecosystem services.