Especially worrisome are risks stemming from the interplay between sovereign debt problems and fragility in the banking sector; these are particularly acute in EU countries with large fiscal imbalances. In past months, we saw budgetary pressures having dramatic spillover effects on bank funding in some countries; at the same time, signs of instability in the banking sector had negative repercussions on sovereign issuers.
This outlook for economic activity is also confirmed by available forecasts. Downside risks to economic growth, relating, in particular, to persistently high and volatile oil prices and concerns about global imbalances, still dominate on the external side. In relation to price developments, annual HICP inflation was 2.2% in December, down from 2.3% in November and 2.5% in October.