Euro area outlook for 2019: cloudy first, followed by sunshine

Growth has significantly slowed during the course of 2018 and we expect that sluggishness to extend to 2019, as several headwinds and risks continue to weigh on the euro area . We expect the economy to grow only by 1.3% next year after 1.9% in 2018. However, a s these headwinds dissipate (and risks such as a hard Brexit do not materialize) we expect the economy to accelerate again, as the fundamental position of the euro area remains sound. Owing to the weaker growth momentum in the short-term , we forecast core inflati o n to broadly move sideways in the coming quarters and only to accelerate again by the end of 2019. We expect the ECB, despite the weaker growth outlook, to end its net purchases under the APP program by the end of this year. As the relative weakness continues , we then expect the ECB to adjust its forward guidance, pushing back the first rate hike to the end of 2019. To “ smooth en ” the repayment of its TLROs, we also think that the ECB is likely to announce a new round of longer-term refinancing operations at some point between June and the end of 2019.