The severe impact on Europe’s exporters of the outright collapse in global demand and tradeflows will cause most economies in the region to contract very sharply in 2009. Indeed, most will now see even deeper downturns than that likely in the US, with the German economy, in particular, set to contract around twice as sharply. The relatively low levels of indebtedness in the region, coupled with the sharp fall in inflation and reasonably powerful policy stimulus now in place, still offers hope that at least some economies will see a return to positive rates of expansion in 2010. But the adverse effects of the export collapse on labour markets and domestic demand present a clear risk of a more prolonged downturn.
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