(The following statement was released by the rating agency)
0 - The deleveraging that is simultaneously taking place in the public, household, and banking sectors in Europe is putting a cap on economic growth, says Standard & Poor's today in its report: 'The Curse Of The Three Ds: Triple Deleveraging Drags Europe Deeper Into Recession.'
'This deleveraging process has reached different stages in each sector and each country, but generally we expect that it will take several more years to complete,' said Jean-Michel Six, Standard & Poor's EMEA chief economist. 'This increases the likelihood that 2013 will turn out to be another very weak year for growth at best.'
The latest economic indicators suggest that most European economies are moving further into recession and that the core countries of the European Economic and Monetary Union (EMU or eurozone) are increasingly also affected.
Some of the weakness can be attributed to a soft global trade environment because demand from emerging markets is recovering only slowly. But the key forces pushing Europe into contraction are essentially domestic, the report says.
The continued weakness in overall economic activity and damaged fundamentals has led Standard & Poor's to lower its baseline forecast for growth in the eurozone and the U.K. We now forecast that GDP in the eurozone as a whole will decline by 0.6% in 2012 and grow by just 0.4% in 2013, compared with zero and 1% growth, respectively, in our previous estimate.
We forecast GDP growth in France of just 0.3% this year and 0.7% in 2013, from 0.5% and 1%, respectively, in our previous forecasts. In Spain, we now forecast GDP will decline by 1.7% this year and that it will be negative 0.6% next year. For the U.K., we have revised our 2012 estimate to 0.3% this year, but we note that the latest U.K. official provisional estimate for the second quarter makes our full-year forecast more uncertain.
'We nevertheless also see a 40% chance of European economies sinking into a genuine double-dip recession in 2013, particularly if a hard landing in some emerging markets delays a recovery in world trade, if one of the main eurozone countries loses access to capital markets for a prolonged period, or if retrenchment in consumer demand is more pronounced,' said Mr. Six.
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