Major economies diverging as growth slows (Q2 08)

The outlook for the European economy remains relatively bright compared to the major downturn underway in the US. Nonetheless, divergences are widening between those economies subject to US-style consumer imbalances – including the UK, Spain and Ireland – and those like Germany where households have behaved in a more restrained fashion over recent years. Those strains look set to increase further as the credit crunch exacerbates the slowdown in some previously overheated property markets and lingering inflation concerns prevent the policymakers from loosening policy very aggressively.