Your SlideShare is downloading. ×
S&P Economic Research: Europe 2013: Recession Strikes Again - Feb 2013
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

S&P Economic Research: Europe 2013: Recession Strikes Again - Feb 2013

228

Published on

Standard & Poors Economic Research: Europe 2013: Recession Strikes Again - Feb 2013

Standard & Poors Economic Research: Europe 2013: Recession Strikes Again - Feb 2013

Published in: Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
228
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
8
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. Economic Research:Europe 2013: Recession Strikes AgainEMEA Chief Economist:Jean-Michel Six, Paris (33) 1-4420-6705; jean-michel_six@standardandpoors.comMedia Contact:Sharon L Beach, London (44) 20-7176-3536; sharon_beach@standardandpoors.comTable Of ContentsThe Real Uncertainties Are For 2014 And BeyondWWW.STANDARDANDPOORS.COM/RATINGSDIRECT FEBRUARY 25, 2013 1 1083448 | 301674531
  • 2. Economic Research:Europe 2013: Recession Strikes AgainAt first glance, the latest European Commission (EC) estimates for GDP growth in Europe in 2013 appear close to theprojections Standard & Poors released in December. After a 0.6% contraction last year, both the EC and our forecastssee the eurozone experiencing another year of recession, whereas we both expect activity in the U.K. economy torebound modestly on the back of a gradual recovery in consumer demand and investment.Looking specifically at the eurozone members, the ECs latest Feb. 22 forecast has Germany recovering more slowlythan our baseline forecast. Two explanations for the difference come to mind: Our December forecast was producedbefore the release of results showing very weak performance in the fourth quarter of 2012 across the eurozone. Thiswas particularly apparent in Germany, where GDP contracted by 0.6%, which sets a lower starting point for 2013.Also, while our forecast and the ECs have the same expected growth rate for consumer demand in Germany in 2013,the Commission anticipates export growth to be weaker than us (3.3% versus 3.8% in our projections) and importgrowth to be stronger (4.1% versus 3.5%). Overview • The European Commissions new forecasts for economic growth in the EU broadly agree with those we published in December, predicting continued recession in the eurozone and modest recovery in the U.K. in 2013. • Whereas the EC now anticipates a slower recovery for Germany and a deeper recession for Italy this year than our baseline forecasts, it predicts a slightly stronger upturn in Europe in 2014 than we do. • We believe these forecasts indicate that the adjustment process in the European economies still has some way to go before we can hope to get back on a higher growth path.For France and Spain, the ECs forecasts are very close to ours, whereas the EC expects a deeper recession in Italy(-1.0% by the EC versus our -0.7%). Italys poor fourth-quarter performance, when GDP contracted 0.9% in threemonths, explains part of the divergence. More fundamentally, the Commission anticipates a larger decline inconsumption (-2% versus -1.5%) and lower export growth (2.1% versus 2.5%). Recent high frequency indicators, suchas the Purchasing Managers Indices and industrial production data tend to support the ECs more pessimistic view.The EC forecasts also provide a stern estimate of the short-term growth prospects in The Netherlands, with GDPcontracting 0.6% compared with our overly optimistic prediction of a 0.3% rise. The sharp downturn in the localhousing market is severely affecting highly leveraged households, which we think will cause consumption to slump1.7% this year.Table 1Comparison Of Standard & Poors And The ECs Economic ForecastsGDP, annual percentage changeWWW.STANDARDANDPOORS.COM/RATINGSDIRECT FEBRUARY 25, 2013 2 1083448 | 301674531
  • 3. Economic Research: Europe 2013: Recession Strikes AgainTable 1Comparison Of Standard & Poors And The ECs Economic Forecasts (cont.) --European Commission-- --Standard & Poors-- 2012 2013f 2014f 2013f 2014fGermany 0.7 0.5 2.0 0.9 1.4France 0.0 0.1 1.2 0.1 1.1Italy (2.2) (1.0) 0.8 (0.7) 0.8Spain (1.4) (1.4) 0.8 (1.3) 0.7Netherlands (0.9) (0.6) 1.1 0.3 1.2Belgium (0.2) 0.2 1.5 0.4 1.0Eurozone (0.6) (0.3) 1.4 (0.1) 1.0U.K. 0.0 0.9 1.9 1.0 1.7f-- Forecasts. Sources: Standard & Poors, European Commission.The Real Uncertainties Are For 2014 And BeyondBeyond a few individual countries, we see a broad consenus on the outlook for Europe in 2013. However, the realpuzzle for forecasters is determining the long-term prospects for 2014 and beyond. After another year of recession,how strong is a recovery in the region likely to be in the following years?The EC projections assume, as we do, a gradual improvement in Europes external environment, with growth in theU.S. and in emerging markets gaining speed. But it remains to be seen how fast the structural reforms implemented inthe various European countries will affect their overall competitiveness and therefore allow them to reap the benefitsof this improvement. Furthermore, its not yet clear how much damage the current recession has inflicted on potentialgrowth. In particular, the lack of investment in most economies since the beginning of the downturn in 2009 is likely tohandicap those economies in the near future.Starting with that second aspect, data for the change in global factor productivity (GFP) since 1999 highlight somestriking trends. GFP combines capital and labor productivity; it is a key variable affecting potential growth. As table 2shows, GFP growth trends have varied considerably between countries in the past 14 years.Table 2Ratio Of Global Factor Productivity To Total EconomyCumulative % change 1999-2012Eurozone (17 countries) 2.3Germany 6.5Ireland 12.2Spain 0.2France 1.1Italy (3.4)Portugal (0.6)Source: European Commission AMECO database.WWW.STANDARDANDPOORS.COM/RATINGSDIRECT FEBRUARY 25, 2013 3 1083448 | 301674531
  • 4. Economic Research: Europe 2013: Recession Strikes AgainWhile GFP growth has been robust in Germany and in Ireland, it has been weak in Spain and in France, and negativein Italy. The drop in Italys GFP presents a serious threat to the longer term growth prospects of that economy.Meanwhile, the recovery in external demand from the second half of 2013 should provide a somewhat uneven lift togrowth across the region. The EC projections for export growth in 2014 are generally slightly more optimistic thanours, but do reflect the uneven performance across the region, with Germany rising 6%, Spain 5.7%, France 4.7%, andItaly and The Netherlands 3.9%.The EC GDP growth projections for 2014 appear more bullish than ours, with the eurozone growing 1.4% (1% in ourforecast) and the U.K. 1.9% (1.7%). Nevertheless, they point to a very slow improvement in the various countriescurrent account balances and a continued rise in government debt-to-GDP ratios in most cases (table 3).Table 3EC Projections As Of February 2013Current account balance (% of GDP) 2012e 2013f 2014fGermany 6.3 6.0 5.6France (1.9) (1.6) (1.8)Italy (0.7) 0.6 0.8Spain (1.9) 1.0 2.5Netherlands 8.2 8.6 8.9Belgium 1.5 2.0 1.9U.K. (3.7) (3.1) (2.0)General government gross debt (% of GDP) 2012e 2013f 2014fGermany 81.6 80.7 78.3France 90.3 93.4 95Italy 127.1 128.1 127.1Spain 88.4 95.8 101Netherlands 70.8 73.8 75Belgium 99.8 100.8 101.1U.K. 89.8 95.4 97.9e-- Estimate, f-- Forecasts. Source: European Commission.Overall, the ECs new set of economic forecasts for the EU and the eurozone appear close to those we published inDecember, although they anticipate a slightly stronger upturn in 2014. More fundamentally, they illustrate that theadjustment process in the European economies still has some way to go before we can hope to get back on a highergrowth path.WWW.STANDARDANDPOORS.COM/RATINGSDIRECT FEBRUARY 25, 2013 4 1083448 | 301674531
  • 5. Copyright © 2013 by Standard & Poors Financial Services LLC. All rights reserved.No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any partthereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrievalsystem, without the prior written permission of Standard & Poors Financial Services LLC or its affiliates (collectively, S&P). The Content shall not beused for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees oragents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are notresponsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or forthe security or maintenance of any data input by the user. The Content is provided on an "as is" basis. S&P PARTIES DISCLAIM ANY AND ALLEXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FORA PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENTS FUNCTIONINGWILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In noevent shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequentialdamages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused bynegligence) in connection with any use of the Content even if advised of the possibility of such damages.Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed andnot statements of fact. S&Ps opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase,hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation toupdate the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgmentand experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P doesnot act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to bereliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives.To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certainregulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&PParties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for anydamage alleged to have been suffered on account thereof.S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respectiveactivities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has establishedpolicies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&Preserves the right to disseminate its opinions and analyses. S&Ps public ratings and analyses are made available on its Web sites,www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription) and www.spcapitaliq.com(subscription) and may be distributed through other means, including via S&P publications and third-party redistributors. Additional informationabout our ratings fees is available at www.standardandpoors.com/usratingsfees.WWW.STANDARDANDPOORS.COM/RATINGSDIRECT FEBRUARY 25, 2013 5 1083448 | 301674531

×