Economies of Europe and America are on diverging paths

Economies of Europe and America are on diverging paths

OTP Bank experts continue to favor Central and Eastern European markets.

The eurozone and U.S. economies are moving in different directions. While growth in the U.S. is expected to slow, Europe appears poised for a moderate rebound, according to OTP Bank’s latest quarterly investment strategy. Analysts note that the two central banks are at opposite points in their interest rate cycles. The bank also provides guidance on which assets may perform well in this environment and which markets investors should focus on.

Budapest, October 1, 2025 – The U.S. economy has slowed in recent months, but not as much as anticipated. Supportive fiscal policy and expected Fed rate cuts make a sharp slowdown increasingly unlikely, according to OTP Bank.

Current data suggest that U.S. growth may have remained robust in the third quarter, with annualized quarterly expansion around 3 percent. After a weaker second quarter, consumption and foreign investment are driving growth. Analysts have slightly raised their 2026 forecast from 1.5 to 1.7 percent GDP growth, though the composition of growth may shift. Tariffs and higher inflation are expected to restrain consumer spending, while exports have recently improved. Risks are balanced: the labor market could weaken relative to baseline expectations, but advances in AI and the tech sector could produce upside surprises.

Europe Looks Set for a Gradual Recovery

In the eurozone, a “soft landing” is expected in the second half of the year, with growth bottoming out before gradually accelerating into 2026. The region’s economic structure has remained stable. Analysts expect Mediterranean economies to lead growth, while Western, industry-focused economies may lag.

In the short term, tariff disputes could slow growth further, keeping annual performance below 1 percent. However, looser fiscal policies could boost year-on-year growth to around 1.5 percent by the end of 2026, particularly if Germany participates. Uncertainty about the impact of German stimulus measures keeps downside risks in play.

“The two major economies are not just growing at different rates - they’re also experiencing opposite inflation trends,” says Gergely Tardos, Head of OTP’s Research Center. Inflation in the U.S. remains above the Fed’s target, whereas eurozone inflation has reached the ECB’s goal. As a result, the central banks are taking different paths: Europe is unlikely to see major rate cuts, while the Fed resumed easing in September after a nine-month pause. U.S. inflation could still face upward pressure due to tariffs and loose fiscal policy.

Stocks, Commodities, Bonds: Where to Focus

Given the current economic backdrop, rising tariffs could trigger short-term corrections in U.S. equities, which have been historically overvalued. Analysts view the risk of recession as low. With supportive fiscal and monetary policies and expanding credit, U.S. equities remain attractive over the long term, leaving OTP’s stance neutral on overseas markets for now.

“Any correction could offer good buying opportunities in U.S. markets,” notes Dávid Sándor, Head of Multi-Asset Research at OTP Global Markets. European equities are more modestly valued. Although the economic outlook is relatively favorable, structural challenges in the eurozone may restrain stock market performance.

A weakening dollar and anticipated Fed rate cuts could create opportunities in emerging markets, although valuations are no longer particularly cheap, and profit outlooks remain uncertain. Central and Eastern Europe continues to look relatively inexpensive, despite increased risks due to fiscal pressures, which could lead to additional taxes or higher existing ones. Overall, OTP maintains an overweight view on regional markets.

Technology Continues to Lead

Analysts remain optimistic about technology stocks, and also see opportunities in utilities and renewable energy. Mining companies could benefit from potential Chinese stimulus measures. Japan is highlighted as a market of interest: deflation has ended, corporate reforms could attract capital, and equities are cheaper than in the U.S.

In Latin America, Mexico could be a relative winner from the tariff conflict. In Central and Eastern Europe, Poland stands out thanks to faster growth compared with Western Europe, fiscal easing supporting valuations, and potential boosts from a Ukrainian ceasefire.

On bonds, OTP recommends short- and medium-term maturities in both the U.S. and Europe, while corporate bond opportunities are limited due to narrowing yield spreads.

For commodities, analysts are generally neutral, citing uncertain growth, the U.S. labor market, and slower Chinese expansion. However, certain commodities, including gold, copper, and uranium, remain attractive due to ongoing central bank purchases, rising government debt, and fiscal pressures.