Growth has slowed as deteriorating financial conditions and weaker export markets are damping exports of financial services and other products. Domestic demand will therefore remain weak and unemployment is expected to increase. Inflation will ease due to falls in energy and commodity prices. The main risk to the outlook is a worsening of the sovereign debt crisis in the euro area, which could have a lasting impact on the large financial sector. Luxembourg should thus continue to participate in European initiatives to ensure that the banking system is well-capitalised and adequately funded.