All in all the financial turmoil triggered by the US housing crisis will not leave the European economy completely unscathed but the impact will be largely confined to those countries where the economic and debt picture most resembles that of the US. This means Spain and, to a lesser extent, the UK. For the euro area we now expect growth of 2.1 % in 2008 (previously 2.2 %). Our 2008 forecast for Germany remains unchanged (2.5 %).

Following the extremely expansive stance of monetary policy in recent years, monetary growth has got well ahead of economic activity, giving rise to substantial excess supply. As long as external factors such as globalization curb the rise in unit labor costs, there are justified grounds to hope that this will not fuel inflationary trends. However, even if the euro area economy were to slow further, we do not see any further scope for a rate cut.

The new Allianz Indicator developed by the economists at Allianz Group and Dresdner Bank provides early pointers to global economic momentum. lt is currently flagging a marked slowdown in growth far the second quarter.