European investors are heading into 2025 with a stark warning: tread carefully. Analysts at Axa Investment Managers (Axa IM) have painted a picture of fragile markets, wavering economies, and thin margins for mistakes. In a recent presentation to clients in Luxembourg, Axa IM’s experts outlined a delicate path ahead—where every misstep could be costly.
This outlook comes at a pivotal moment for Axa IM. On 1 August, it was announced that BNP Paribas is set to acquire Axa IM for 5.1 billion euro, with the deal expected to close by mid-2025. The merger will create a combined asset management entity overseeing 1.5 trillion euro in assets. The transaction is expected to strengthen BNP Paribas’s position in long-term asset management and reflects a broader trend of consolidation in the industry.
As the investment arm of Paris-based Axa, a global insurance and reinsurance powerhouse, Axa IM currently manages some 844 billion euro in assets and employs 2,700 professionals worldwide. The firm’s outlook for 2025 carries significant weight given its scale and role in the European investment landscape.
‘The starting point is not great’
Gilles Moëc, Axa Group’s chief economist and Axa IM head of research since 2019, didn’t sugar-coat the outlook. “The starting point is definitely not great,” he declared, pointing to sluggish growth in the Eurozone’s key economies, France and Germany. Political fragmentation, policy uncertainty, and the lingering effects of the Ukraine conflict have battered confidence across Europe. Business sentiment is faltering, and economic resilience is wearing thin.
Moëc’s perspective is underpinned by decades of experience in high-level economic roles. Before joining Axa, he served as chief European economist at Bank of America Merrill Lynch and Deutsche Bank. Earlier in his career, he held senior positions at the Banque de France and France’s national statistical institute, Insee. His deep understanding of European economic dynamics lends weight to his warning: Europe’s recovery is on shaky ground.
Yet Moëc did identify one potential saving grace: Europe’s commitment to a greener economy. “Net zero is absolutely in the European economic interest,” he stressed, suggesting that sustainable investment could inject some much-needed vitality into ailing economies.
The US: Growth or a ticking time bomb?
Across the Atlantic, the outlook appears more positive—but it’s a potential minefield. Axa IM expects US GDP growth to outpace consensus in 2025. But the optimism comes with a big asterisk: the spectre of “Trumponomics 2.0.” A return to aggressive fiscal policies, trade wars, and protectionism could send inflation soaring and debt spiralling.
The risk of unsustainable public finances is very real, Moëc warned. “US yields are probably a bit higher than what the fundamentals would have it, but the difference is due to the market increasingly paying attention to the possibility that we are actually on the brink of a completely unsustainable trajectory for public finance in the US, hence the premium, hence the difficulty to bring the long-term yield down.”
Strategies on a knife-edge
Navigating this precarious landscape requires precision. Chris Iggo, Axa IM’s chief investment officer for core investments, offered a roadmap for investors. With extensive experience overseeing Axa IM’s global fixed income teams and now chairing the Axa IM Investment Institute, Iggo is responsible for bringing together insights from research, quantitative analysis, and responsible investment strategies.
Iggo recommended income-generating assets like short-duration bonds and high-yield debt to secure returns. In a low-growth environment, steady income is your best bet, he advised.
But even these “safe” options come with risks. Corporate credit spreads are razor-thin. There’s little room for error, Iggo cautioned. If the economy falters, spreads could widen abruptly, leaving investors exposed.
“Credit is quite expensive,” Iggo said. “Should something go wrong, should there be a growth disappointment, or should there be some kind of external shock that leads to a risk-off kind of episode, then you’d like a little bit of extra cushion for the credit spread. Unfortunately, we are at the very, very low end of the historical range.”
Iggo pointed to sector bets, away from the European auto sector, and more European financials.
The equity market’s tipping point
For equities, the outlook is just as nerve-racking. US stocks, especially in tech, are priced for perfection. Any disappointment in growth—or a shift in market sentiment—could spark a rapid downturn. Moëc highlighted a potential shock pivot: a sudden move “out of equities and back into bonds” if growth underwhelms or inflation dips. That, he suggested, “would be the biggest surprise in 2025”.
Walking the tightrope: Diversify, adapt, survive
With 844 billion euro in assets and the imminent BNP Paribas acquisition, Axa IM’s core message is clear: stay nimble. Diversify portfolios, focus on income, and be prepared to pivot. With markets teetering on a tightrope, flexibility and caution are paramount. In a world where political shocks, policy missteps, and economic fragility are the norm, there’s no room for complacency—and little room for error.