If the policy response to the crisis continues to be robust, we believe GDP in the euro area could grow 0.7% in 2009, a full half-percentage point higher than the IMF’s recent gloomy prediction.

The Lisbon Indicator, which measures progress on Europe’s growth and jobs agenda, fell to 0.9 points in the second quarter of this year, down from its high of 1.2 points in the second quarter of 2007. The decline is mostly due to slower economic growth and a decline in labour productivity. On the positive side, the quality of Europe’s workforce continues to improve, while the level of growth-oriented investment remains steady.

Germany and France should grow 0.7% in 2009, roughly the euro area average; Italy and the United Kingdom are set to grow 0.5%, and Spain at 0.4%. However, the convergence of growth rates in the main EMU economies masks large structural differences between them, which will be more noticeable when growth picks up again.