Growth dynamics cooling, while domestic demand remains key growth driver
Despite strong domestic demand performance, growth dynamics further slowed down in 2Q19, to 2.5% y/y (from 3.3% y/y in 1Q19), mainly due to the strong surge in import growth, thus wrapping up 1H performance a tad below the 3% mark. We see the growth rate remaining at similar levels going into 2H19, i.e. the headline figure moving around the 2.5-3.0% band, supported by both private consumption and investments, while net exports are seen as remaining in the negative region. We revised our FY19 forecast down to 3.0%, accounting for somewhat weaker 2Q figures, with risks to the outlook mainly linked to external uncertainties.
The CPI trajectory is expected to remain slightly above 2% for the remainder of the year, as strong domestic demand should continue to drive upside pressures. Fiscal trends remain strong, with the 1H19 budget surplus reported to be in excess of EUR 200mn - the 2019 surplus is expected to be around 0.8% of GDP, amid solid economic growth and a limited spending pattern, while the public debt trajectory should maintain its downward trend. The latest rating assessments brought upgrades on both the S&P and Fitch side, so we expect to see Moody's next, in order to align its view.