The eurozone should gradually climb out of its mild recession in the second half of this year and into 2013, said Standard & Poor’s in its report “Assessing the severity of the eurozone recession is a close call.”
“The core countries will likely lead the way back to growth, with other member countries delivering diverging performances,” Jean-Michel Six, Standard & Poor’s EMEA chief economist, said.
Under our baseline forecast for 2012-2013, which we updated at the end of 2011, we project flat GDP growth for the eurozone as a whole in 2012 and 1% growth in 2013. We currently assign a 60% probability to our baseline forecast, versus 40% for our alternative forecast of a true double dip. This would have a particularly adverse impact in countries like Spain, Portugal, and Italy.
“We believe three main factors will determine the depth of the current downturn namely, how demand from emerging markets holds up in the coming quarters; how European consumers react to renewed uncertainties, such as rising unemployment and concerns about the sovereign debt crisis; and how European governments and especially the European Central Bank rekindle investor confidence in capital markets in the next few quarters.
“We think the scale continues to tilt in favor of a mild recession and a slow return to growth, although the risks of a gloomier outcome have not diminished yet,” Six added.