Grim. There is no other word for the European Commission's outlook for the euro-zone economy in its autumn survey. But it might get grimmer for countries with the biggest current-account deficits.

While the euro zone's current-account deficit is forecast at around 1% of gross domestic product in 2009, Italy's is projected at 1.9%, Spain's at 2%, Austria's at 2.7%, France's at 3% and Greece's at an eye-popping 15%.

With individual currency devaluation not an option, the only way these countries can adjust as exports fall is for imports to fall even faster through a contraction in domestic demand. The euro-zone slowdown may last longer than the commission's forecast of a 2010 pickup.

Countries with the biggest imbalances in their current accounts and public finances could feel real pain, putting still relatively new euro-zone institutions under pressure. Anticipation of that at least partly explains why investors continue marking down the value of other euro-zone government debt compared with Germany's, seen as the safest bet.

The commission expects inflation in 2009 only slightly above the ECB's 2.0% target. If the central bank has the same view, it is likely to ease monetarypolicy aggressively.

The euro hit a low of 82 cents in 2000. Even though the currency has fallen 35 cents against the dollar in three months, to $1.27, it may have considerably further to fall.

Matthew Curtin