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S&P Forecast Says Eurozone Economy Shows Signs Of Stabilizing, But Recovery Is Still Some Way Off

Despite signs in the second quarter that the recession is easing for the eurozone as a whole, a meaningful recovery still appears some way off. Some countries are faring worse than others in terms of business investment, deleveraging, real exports, and bank lending rates and volumes. We have raised our 2013 growth estimate for the U.K. and lowered our projections for Germany and Italy, while cutting our inflation forecast for the eurozone.

The eurozone economy remains stuck in its second recession in five years, but recent data show that it may have hit bottom in the second quarter of 2013, Standard & Poor's said today in its latest European economic forecast.

"We expect eurozone economic growth to slowly gain momentum from the final quarter of this year and into 2014, but a meaningful recovery still appears elusive," said Jean-Michel Six, Standard & Poor's chief economist for Europe, the Middle East, and Africa, in the report, "The Eurozone Economy Shows Signs Of Stabilization, But Recovery Is Still Some Way Off."

Despite signs that the downturn is easing in the region as a whole, some countries are faring worse than others. In Spain and Italy, for example, there seems to be no letup in the decline of private-sector business investment, whereas in Germany and France investment appears to be steadying. Some countries such as Germany and Ireland have made some progress in reducing their high levels of private-sector debt, while others have seen marked increases in private debt since 2007. The implication here is that the deleveraging process may still be in its infancy for some countries.

Export performances also vary. For example, we expect real exports to grow reasonably solidly this year in Spain and remain largely flat in the U.K.

Finally, bank lending rates continue to diverge across member states in the eurozone (European Economic and Monetary Union), and we anticipate that shrinking bank lending will continue to dampen domestic demand in Italy, Portugal, and Spain.

In light of these trends, we have updated our forecasts for the eurozone and U.K. economies.

For the eurozone as a whole, we now anticipate inflation to average 1.5% this year (compared with 1.9% in our March report, "Entrenched In Recession, Europe Seeks A Balance Between Deleveraging And Growth," published March 26, 2013) and 1.6% in 2014 (unchanged).

These changes acknowledge that price trends have finally started to reflect weak demand conditions in most of Europe. Having said that, we still think the threat of deflation (negative growth and negative inflation rates) is still remote. One reason: wage cost pressures have been only slowly easing despite considerable labor market slack.

We have lowered our 2013 forecast for real GDP growth for Germany to 0.4% from 0.8% in March, and for Italy to -1.9% from -1.4%, while modestly increasing our 2014 estimate to 0.5% from 0.4%. Finally, we have lifted our 2013 forecast for GDP growth in the U.K. to 0.8% this year from 0.6% in March. Meanwhile, we forecast 1.2% growth in 2014, which remains below the U.K. consensus forecast of 1.7%.

Standard & Poor's Ratings Services, part of McGraw Hill Financial (NYSE: MHFI), is the world's leading provider of independent credit risk research and benchmarks. We publish more than a million credit ratings on debt issued by sovereign, municipal, corporate and financial sector entities. With over 1,400 credit analysts in 23 countries, and more than 150 years' experience of assessing credit risk, we offer a unique combination of global coverage and local insight. Our research and opinions about relative credit risk provide market participants with information and independent benchmarks that help to support the growth of transparent, liquid debt markets worldwide.
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Jeudi 4 Juillet 2013