COLUMNISTS Two aspects of the eurozone economy are often mixed up. One is its overall performance. The other is the divergences that at any time exist within the single currency area. The Spanish economy may be about to fall off a cliff. But Spain accounts for only 11.8 per cent of the eurozone’s gross domestic product. If you look at the eurozone from a great height, a meltdown of the Spanish economy looks like a minor regional wildfire.
Overall, the eurozone economy is in reasonable shape. The latest indicators point towards a slowing in economic growth but not a recession. The European Central Bank is probably a touch too optimistic, as its own forecast has not yet fully taken account of the seriousness of the US downturn. But there are some reasons for guarded optimism. Most of the eurozone does not have a house price problem. Corporate and personal balance sheets are in good shape and credit to the private sector continues to grow at double-digit rates. This does not usually happen when you are about to hit a deflationary slump.
