The euro-zone economic outlook has gone from bad to worse. The sharpest ever drop in the previously reliable EC Economic Sentiment Indicator in October left it pointing to annual falls in GDP of around 0.5%. Activity might not plunge as rapidly as this survey suggests – such a decline would require quarterly falls of 0.5% in Q3 and Q4. But given that global demand is weakening rapidly, consumer confidence has fallen to near a 15-year low and credit conditions are tightening, the downturn unfortunately appears to have much further to run. We now see GDP falling by 1.0% next year, weaker than our previous forecast for the economy to stagnate.
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