The European Economics team at Morgan Stanley are busy revising euro wide growth forecasts downwards. 0.4% this year for the whole zone. This is why Chinese exports are starting to boom, increasing pressure on European companies, who need to compress prices following the euro rise, leading to Chinese outsourcing. The problem is not in China, it is in Europe, I think Andy's logic is impeccable here.
We are cutting our Euroland GDP growth forecast for 2003 from 0.9% to 0.4%. As for 2004, we are trimming our forecast from 2.3% to 1.9%. Note that the 2004 forecast is discounting an unusually strong and positive calendar effect -- non calendar adjusted GDP growth would be 2.1%. In addition, we cut our average inflation forecast for 2003 from 2.1% to 1.9%, and from 1.5% to 1.4% in 2004.
Source Morgan Stanley Global Economics Forum