Do you see a credit crunch risk in Europe that could harm the economic outlook? 

No. We see a continuation of declining credit growth which is consistent with monetary tightening, but no credit crunch. Most European banks have plentiful capital and liquidity to support the real economy: We expect them to remain open for business and to continue extending loans to creditworthy customers. European banks are not lumbered with weak assets that would pose challenges to capital or liquidity levels. Those that are experiencing declines in asset prices all have capital levels well above regulatory requirements. Moreover, European corporates and households are not carrying excessive leverage.

Regarding the macroeconomic implications, as we had already lowered our GDP growth forecast for the Euro area following the US banks and Credit Suisse episodes, we believe that our below consensus forecasts are now conservative enough, that said the new stress over Deutsche Bank means that risks are now a bit more tilted towards the downside.

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