The consolidation of Eurozone public finances has made good progress in recent years, with the average fiscal deficit falling to a record low in 2018. But the legacy of the European debt crisis still looms large.
Preliminary GDP data confirmed that the Eurozone economy ended 2018 on a weak note. While fundamentals remain positive: the labor market continues to expand and financial and monetary conditions remain accomodative, elevated uncertainty is likely to weigh on economic activity in 2019. We expect GDP growth to slowdown to +1.6% in 2019 from +1.8% in 2018. Risks to our forecast remain on the downside.
Sentiment indicators for the eurozone continued to decline in November. So far, slower economic momentum in the eurozone has been primarily attributed to the unfavorable development of industry. However, the service sector - the backbone of the current upswing - is far from enjoying immunity and increasingly coming under pressure.