In Luxembourg, real GDP grew by 2% in the first quarter of this year and by 5.1% year-on-year. Information and communication services, as well as commerce, were the main contributing sectors to the growth. The financial sector's value add stagnated somewhat compared to the last quarter of 2017, with the sector only growing 0.4% over one quarter. Real estate development was the main driver of the construction sector development, which grew 1.3% over the same period. Improved economic conditions are expected gradually strengthen underlying inflation and wage increases. We expect unemployment to continue to decline and reach 5.4% in 2019.
Looking to Europe, the Greek debt crisis is coming to end and the ZEW index has plunged into the negative, reaching a level close to July 2016, when it dropped due to the Brexit vote. Industrial production also fell following six months of consecutive increases. While the ECB maintains that outlook remains positive and projects a GDP growth of 2.1% for the year, followed by 1.9% for 2019 and 1.7% for 2020, and 1.8% inflation for 2018, it announced that it didn't want to raise policy rates until July 2019. The euro weakened as a result and markets were somewhat disappointed. On top of this, the impact of higher taxes on steel and aluminium exports to the US is expected to be marginal, but it raises uncertainties surrounding a potential trade war.
The main risk we see is the US economy potentially overheating, which could have consequences for Europe. While recent tax cuts should encourage consumption and investments, an inflation acceleration could push the Fed to raise rates faster than expected, which could put highly indebted sectors at risk. Additionally, the term premium, which is the gap between yields on two-year and ten-year Treasuries, is at its lowest in the US.