Higher oil prices during most of 2018 have reduced fiscal and external pressures in the short term, but weakened the impetus for fiscal reform, leaving government credit profiles exposed to future phases of lower oil prices. Geopolitical tensions will remain a key source of risk in 2019, while climbing unemployment could pose political and social risks longer term.

Slowing euro area growth is unlikely to trigger major financial policy changes among the region's companies. Many have a number of options to help shield earnings and maintain credit quality, including cutting capital spending, pulling back on opportunistic acquisitions and reducing dividends.

Solid economic fundamentals will continue to underpin government credit quality in 2019. However, tensions between the US and China could weigh on growth potential, while wider risk premia would raise government liquidity risk, particularly for frontier markets. Potential shifts in domestic political and policy priorities also pose risks.

The region's economic growth momentum will persist while broadly improved debt structures will mitigate risks from tightening global liquidity. Downside risks stem from evolving political landscapes and their policy implications.