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Morgan Stanley is out with a good note on Europe’s contraction.  Apparently things are worse than anyone expected:

“Due to a run of very disappointing activity indicators, we are aggressively lowering our 2009 GDP growth estimates for the euro area. We are cutting our 2009 GDP growth estimate for the euro area to -3.3%, from -1.6% before. This would imply a contraction in activity that is considerably larger than any experienced since the end of World War II. The downgrade reflects both a lower-than-expected 4Q GDP outcome as well as coincident monthly indicators pointing to a further acceleration in the rate of contraction in early 2009. At the same time, our outlook for quarterly growth dynamics in the remainder of this year has only changed marginally. On the back of tentative signs of stabilisation in a range of business sentiment indicators, we continue to look for gradual stabilisation in activity over the coming quarters and hope to see a return to positive GDP growth rates towards year-end. Hence, the change to our 2010 forecast is considerably smaller, bringing the full-year GDP estimate down to 0.5%, from 1.1% before. Over the whole forecast horizon, we are lowering our estimates by 2.3 percentage points.”