Europe

The European economic backdrop and outlook for the region's credit markets in 2026 are examined, with a focus on both private and liquid credit. Despite a less optimistic backdrop compared to the U.S., European companies have demonstrated conservative balance sheet management, leading to relatively low default rates. Southern European economies, particularly Spain, Portugal, and Greece, have outperformed their Northern European counterparts due to resilient service sectors like tourism, tech, and finance. While Germany faces challenges due to its reliance on an industrial base impacted by energy issues, government investment in infrastructure, energy transition, and defense may create new opportunities. The European private credit market, while smaller than the U.S., presents opportunities due to its complexity and less crowded nature, especially for managers with local expertise.