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.
The Greek economy’s return on a positive growth trajectory at the start of 2019 can largely be attributed to economic impulses coming from the domestic economy.
After a bit of a dry spell in the second half of 2018, economic momentum has shifted up a gear in the Eurozone in Q1 2019 with GDP growing by 0.4% q/q.
The Italian economy slipped into recession in late 2018 - the third one since 2008. In particular, the budget dispute with the EU Commission weighed on economic activity last year.
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.
The increased risks associated with Brexit, the trade dispute, political protests in France and problems in the automotive sector once again put the brakes on the EMU economy in January.
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.
