Fiscal worries darken the outlook

The news on the euro-zone continues to be dominated by the fiscal crisis in Greece, which has prompted Greek government bond yields and the cost of insuring against default using credit default swaps (CDS) to rise further. These developments are putting downward pressure on the euro, which might provide some support to the region’s exports in future. And March’s pick-up in survey measures of economic activity suggests that the recovery has not stalled altogether. But with pressure for aggressive fiscal tightening spreading throughout the region, we now see GDP expanding by 1.0% this year and only 0.5% in 2011.