European fixed income investors are increasingly worried about rising geopolitical tensions and a worsening outlook for economic growth, according to a survey by Fitch Ratings.

The rating agency reports that geopolitics remains the top risk to credit markets, and that fears about a recession have almost doubled. Investors are also increasingly concerned over deflation, Fitch says, as 53% of respondents to its survey ranked it as a high risk, which is an all-time high. The combination of these issues have contributed to selloffs in various markets in recent weeks, it notes.

Fitch says a shift in investor sentiment is highlighting much greater concern regarding economic growth; and, its own forecasts have been pared back, consistent with investors’ views, it says.

“The challenge for policymakers is calibrating the appropriate policy response, with fiscal flexibility in the eurozone particularly constrained,” it says.

Indeed, the survey also found that investors are divided on how to tackle these risks. Fitch reports that less than a third of respondents are in favour of additional fiscal easing in weaker countries, whereas 39% opposed to further easing amid concerns that it would threaten longer-term stability. The remaining 31% are indifferent, it reports; assuming that any fiscal initiatives would be outweighed by potential monetary policy actions by the European Central Bank (ECB).

Most sovereign ratings in the eurozone have stable outlooks, it says, based on forecasts that government debt ratios have already peaked, or will be peaking during the forecast horizon. However, it also notes that debt levels will remain elevated, limiting the potential for positive rating actions. “A combination of continued, or additional, fiscal consolidation and stronger GDP growth would improve debt dynamics, but may prove elusive, at least in the short term,” it says.

The survey, which represents the views of managers of an estimated €7.1 trillion of fixed-income assets, was conducted from September 3 to October 3.