Why is the euro-zone economy slowing?

Last week’s data brought further evidence that growth in the euro-zone economy has slowed in the first quarter of this year. That no doubt partly reflects the heightened concerns over the global economy and the associated gyrations in financial markets.

But a substantial part of the slowdown reflects more fundamental forces which we have long argued would cause euro-zone growth to disappoint most forecasters’ expectations this year. The risks even to our bottom-of-the-range forecast of 1.2% GDP growth this year are shifting to the downside.