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Euro Area Sovereign Outlook Stable to Start 2019

Euro area sovereigns have a stable outlook for 2019 according to a new report from Moody's Investors Service. Economic growth is expected to remain healthy as government debt burdens ease.

"While economic growth in the euro area will slow in 2019, at 1.9%, it will remain robust enough to be credit supportive," said Steffen Dyck, a vice president and senior credit officer with Moody's, in a release. "However, mounting trade tensions and a slowing global economy are among prominent external downside risks to the benign macro-economic conditions we see for the euro area this year."

There are currently 15 sovereigns in the euro area with stable outlooks, while four are positive. No sovereign in the bloc has a negative outlook for the first time since 2007.

U.S. tariffs as well as Brexit remain two key factors that could shift outlooks, as the risks from each are linked to several countries. Protectionism and economic policy could impact sentiment and investment negatively.

From within the euro area, political fragmentation is leading to "uncertainty regarding policy direction at the national level and limits the prospects for meaningful reforms intended to bolster the resilience of the euro area to shocks," according to Moody's.

Government debt burdens will decline, yet they are higher than they were prior to the global financial crisis. This will affect sovereign ratings within the region, including Italy, Portugal and Spain.

-Michael Miller, managing editor

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Tuesday, 18 June 2019