The asset management, life and pensions sectors in the eurozone are showing signs of recovery, but the financial services industry as a whole faces a difficult short-term future, according to Ernst & Young.
In their latest eurozone financial services forecast, published today, the consultants said that Greece's debt restructuring and the European Central Bank's long-term refinancing operation had calmed financial markets 'at least temporarily'.
But the eurozone economy is now expected to shrink by 0.5% in 2012, which will put pressure on financial services companies across Europe and beyond, they said. In particular, non-performing loans are likely to rise to their highest level since the eurozone was created in 1999, and business lending is expected to fall by 3.4%, more than during the financial crisis.
Andy Baldwin, head of financial services in Europe, Middle East, India and Africa at Ernst & Young, said: 'Financial services in the eurozone, and those businesses that they work with, will continue to feel the pinch of a weakening economy trapped in a low growth, low investment cycle.'
However, the report identified a brighter picture for the asset management and pensions sector, reversing trends that saw the total assets under management decline by 8.5% in 2011. This was due to a large decrease in assets under management for eurozone investment funds, driven by reduced investor confidence caused by sovereign currency downgrades, Ernst & Young said.
Inflows into shorter-term funds also slowed as competition from banks for retail deposits increased, but Ernst & Young now expected this withholding of retail investment to start to reverse in the second half of 2012.
Assets under management are predicted to rise by 6.1% in 2012, and to average 8% a year growth between 2013 and 2015. According to the analysis, AUM will rise above its pre-crisis peak by the end of 2015.
Marie Diron, economic advisor to the forecast report, said: 'These forecasts for UCITS and non-UCITS are largely representative of AUM across the asset management industry.
'Pension funds have increased their share of total AUM in the last 18 months, in part benefitting from the flight from eurozone UCITS, and beyond 2014 we predict that the long-term austerity measures being put in place will drive the funding crisis for public pensions and healthcare.
'This is likely to result in the asset management and life and pensions industries supplementing or replacing state provisions for Europe's ageing population.'
Mr Baldwin said the longer-term outlook for the eurozone financial services sector was 'moderate', with banks now having time to build capital. Banking assets and loans and insurance premiums were all now set to recover to 2010 levels by 2015, he added.