By Vivienne Russell | 26 September 2012
The eurozone economy will contract by 0.8% this year, remain stagnant next year and not return to growth until 2014, ratings agency Standard & Poor’s has predicted.
Issuing a downwards revision of its earlier forecasts yesterday, S&P said the outlook for Europe was ‘bleak’. The agency’s July projections had suggested a 0.7% contraction in 2012 and growth of 0.3% in 2013.
Jean-Michel Six, S&P’s chief economist for Europe, the Middle East and Africa, said: ‘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.
‘In particular, we forecast another year of very weak growth in 2013 in France and the UK and further declines in output in Italy and Spain.’
However, S&P added that growth in some smaller economies, including Switzerland, Sweden and Belgium, continued to ‘show some resilience’.
The agency said that, overall, the European economic outlook remained dominated by the public sector, private sector and financial sector all paying down debt.
‘We believe that fiscal contraction is taking a bigger bite out of gross domestic product than in past downturns mainly because of the simultaneous deleveraging process in the private sector, associated with weak money supply growth,’ said Six.
S&P’s projections come as the Bank of Spain warned that the Spanish economy continued to shrink at a ‘significant rate’. Following a 1.3% contraction in the second quarter of this year, the bank today said: ‘Available data for the third quarter of the year suggest that GDP kept falling at a significant rate, in a context of high financial tensions.’
Spain prospects for next year are particularly gloomy, according to yesterday’s S&P report. The country can expect an economic contraction of 1.4% next year, the agency said.
Protesters surrounded the Spanish Parliament in Madrid yesterday as MPs met to plan further austerity measures for Thursday’s draft budget.
