Sept 25 - Standard & Poor’s Ratings Services said today that it now expects -0.8% GDP growth in the eurozone in 2012 and flat growth in 2013. For Spain, the forecast is now for a 1.4% contraction next year. (Watch the related CreditMatters TV segments titled “New Recession In The Eurozone” and “Nouvelle Recession Pour La Zone Euro,” dated Sept. 25, 2012.)
This compares with our previous projections in July for 2012 and 2013 GDP growth of -0.7% and 0.3% for the eurozone, and -0.6% for Spain in 2013.
“Recent economic indicators continue to paint a bleak picture for Europe. The data are confirming our view that the region is entering a new period of recession, after three quarters of negative or flat growth since the final quarter of 2010. But prospects continue to vary from country to country,” said Jean-Michel Six, Standard & Poor’s chief economist for Europe, the Middle East, and Africa.
“In particular, we forecast another year of very weak growth in 2013 in France and the U.K., and further declines in output in Italy and Spain,” added Mr. Six, in the report published today, “The Eurozone’s New Recession—Confirmed.”
A look at high-frequency economic indicators for individual countries in Europe has a few brighter spots: Growth in the smaller open economies of Europe such as Switzerland, Sweden, and Belgium continues to show some resilience.
On the other hand, the recession in Italy and Spain is deepening. In between, the so-called “core countries” of the eurozone, especially France, are muddling through on a no-growth path—although the Banque de France’s latest quarterly estimates, published this September, show that real GDP has been contracting in the third quarter. In Germany, the August IFO survey on business conditions also indicates that the downturn in the southern part of Europe is now affecting the strongest economy of the region.
Overall, the European economic outlook generally remains dominated by the deleveraging process occurring almost simultaneously in the public sector, the private sector, and the financial sector.
Meanwhile, softness in emerging markets now appears more protracted than we initially anticipated.
“We believe that fiscal contraction is taking a bigger bite out of GDP than in past downturns mainly because of the simultaneous deleveraging process in the private sector, associated with weak money supply growth,” Mr. Six said.
“The eurozone periphery hasn’t received as much interest rate relief on international capital markets from government deficit reduction as history would suggest (Sweden in the 1990s for instance), but the European Central Bank’s new framework (Outright Monetary Transactions) may counteract that,” said Mr. Six.
— How The Swiss National Bank Is Driving Down Yields For The Eurozone Core, Sept. 24, 2012
— The European Central Bank’s Policy Initiatives Could Benefit Some Sovereigns, But Implementation Risks Remain, Sept. 7, 2012
— The Curse Of The Three Ds: Triple Deleveraging Drags Europe Deeper Into Recession, July 30, 2012