Euro-area growth has hit a slow patch. Following promising signs of having turned a corner, economic data released last week revealed that Q4 growth in the euro area reached its slowest pace since the European debt crisis. German growth was flat for Q4, in line with expectations. As far as Germany’s outlook goes, dark clouds have taken the form of an uncertain political environment and China’s recent weakness. We expect German politics to be even more inward-looking following Annegret Kramp-Karrenbauer’s resignation from the CDU leadership. Snap German elections in 2021 are now more likely. Meanwhile, weakened Chinese demand could take a tangible toll, given German exports to China account for close to 3% of German GDP.
European banks have benefitted from a