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The eurozone economy remains weak but will avoid recession, partly thanks to robust private-sector balance sheets. Weak growth, low inflation and declining inflation expectations have prompted the ECB to reduce interest rates and restart net asset purchases. The prospect of low interest rates for longer and additional quantitative easing will support debt dynamics in highly indebted sovereigns but also reduce pressure on governments to reduce debt and implement structural reforms. Lower government bond yields do not necessarily support sovereign creditworthiness.

Trends in government debt/GDP remain the most important driver of ratings in the region. ���������ֳ� expects only marginal fiscal easing in 2020. The way in which fiscal space will be used and the degree to which growth is lifted by stimulus will be important considerations in determining what, if any, rating implications might follow policy changes ahead.

Sovereigns with a Stable Outlook entering 2020 account for 64% of ���������ֳ�’s western European sovereign rating portfolio. There have been no upgrades or downgrades during 2019. Five countries – Austria, Cyprus, Finland, Malta and Portugal – are on Positive Outlook. Italy and San Marino are on Negative Outlook, while the UK has been on Rating Watch Negative since February.