Summer 2008: Europe Resists U.S. Contagion
If there is a part of the world where the economy — although not the financial markets — has decoupled from the United States, it’s the euro zone, and it achieved this well before the current business cycle. While the Euroland economy is not immune to the U.S. downturn and the problems in the financial markets, its relative lack of major imbalances suggest that it will fare better than either the United States or the United Kingdom.
The Euroland economy is slowing but not substantially. Growth estimates have been trimmed back to just below trend of 2 percent in 2008, exports remain strong and overall economic sentiment remains above its long-term average, corroborated by the European Commission’s business climate indicator. So, while continuing to slow relative to its growth rates in 2006 and 2007, Euroland is not anywhere near recession. Employment is high and business profits and balance sheets are strong.
Inflation, meanwhile, is at a h