S&P Warns "Prospect Of European Double Dip Looking More Likely"

Tyler Durden's picture

Yesterday, Goldman proclaimed that their new base case outlook is one of a double dip for Germany and France, and hence all of Europe. Now, it is S&P's turn. In a just released report, S&P says that "The prospect that Europe might dip into recession again is looking more likely. The flow of news and market developments in recent weeks, such as sharply deteriorating business sentiment and a projected slowdown in the U.S., has led us to once again revise downward our projections for economic growth in 2012. This follows a number of downside revisions in our last economic outlook at the end of August. We now forecast GDP growth in the eurozone at 1.1% in 2012, compared with 1.5% in our earlier projection. For the U.K., we expect a GDP growth rate at 1.7% in 2012, slightly below our 1.8% projection in August. We still do not expect a genuine double dip to occur in the eurozone as a whole or in the U.K., but we recognize that the probability of another recession in Western Europe has continued to grow. We now estimate the probability of a new recession in Western Europe next year at about 40%. In our baseline forecast, however, we continue to anticipate sluggish and unevenly distributed growth over the coming five quarters." Next up: rating warning for France, and all EFSF bets are off?

Overall, nothing too new in the report, but the overall bearishness is surprising:

Business Surveys Fell Sharply Through The Summer


Among the several recent developments that have led us to cut our forecasts are business surveys from August and September, which point to a fresh deterioration in the business climate. This is visible not only in those economies typically most exposed to the sovereign crisis--such as Portugal, Spain, and Ireland--but also in the core countries of the eurozone and in the U.K. (see chart 1). In Germany, the widely followed IFO index pointed to deteriorating business expectations in September. This echoed the rising pessimism of investors that same month in the ZEW investor sentiment index from the Center for European Economic Research. Growing pessimism in the corporate sector is equally visible in the U.K., France, and Italy.


This declining business confidence reflects the slowdown in the manufacturing and service sectors across Europe since the beginning of the second quarter, in our view. But an additional negative factor has gradually emerged over the past three months. Financial market pressures on European banking institutions have sharply increased, as testified by the fall in bank share prices since early July. Concerns about the European banks' sovereign exposure have led investors to reduce their holdings of bank shares, in turn causing financial institutions to accelerate strengthening their balance sheets. Several major banks have recently announced that they intend to reduce the size of their balance sheets to raise their solvency ratios. We anticipate that a possible consequence of this for European corporate borrowers relying on bank lending could be more expensive financing costs. We believe this presents additional downside risks for capital spending in 2012.

The US is also not insulated:

A Forecast U.S. Slowdown Will Also Hit European Exports


Another factor behind our decision to lower our projections for the European economies again is the cut in our forecast for the U.S. economy. Continued weakness in labor markets, the persistent decline in house prices, and anemic consumer demand have caused Standard & Poor's Ratings Services U.S. economists to lower their GDP growth projections for 2012 and 2013 from 2.4% and 2.6%, respectively, last July to 1.9% and 2.2% in September (for further details see "U.S. Economic Forecast: Fishing For A Recovery," published on Sept. 14, 2011, on RatingsDirect on the Global Credit Portal). These significant revisions have important implications for Europe's foreign trade sector, in our view. The U.S. remains the No. 1 destination for EU exports (see  table 1) and the second destination, after the U.K., for eurozone exports. In addition, weaker demand from the U.S. is likely to penalize emerging markets' exports, causing second-round negative effects on European trade with those markets.


Headwinds Point To Lower GDP Growth


In light of these developments, we are now further lowering our economic growth forecasts for Europe's four largest economies from our previously published predictions (for further details see "Slowing Growth In Europe Increases The Risk Of A Double Dip," published on Aug. 30, 2011, on RatingsDirect on the Global Credit Portal). Our major revisions are as follows (see also table 2):


Germany. We have revised our 2012 projections of GDP growth down to 1.5% from 2.0%, reflecting weaker demand from non-European markets. By contrast, we continue to expect relatively positive trends in consumer demand on the back of continued growth in employment and real disposable incomes. We anticipate private consumption will expand by 1.2% in 2011 and 1.5% next year.


France. We have cut our GDP growth forecast for 2012 to 1.3% from 1.7% based on a number of considerations. First, we believe that market pressures on French banks, if they persist, are likely to limit credit distribution. Second, the recent performance of French exports has been somewhat disappointing, in our view, increasing by only an estimated 4% this year--half the rate of growth of German exports. Nevertheless, our projection is still a little higher than the Consensus Economics forecast for 1.2% GDP growth for 2012 in its September edition. This is because we believe French consumers will be able to increase their spending next year by about 1.2% on the back of a lower savings rate and because construction activity should remain fairly buoyant: residential dwellings are still in insufficient supply.


Italy. We've lowered our GDP growth projection for next year to 0.5% from 0.8%. This is because we believe that fiscal measures that the government presented during the summer contain tax increases that are likely to hurt consumer demand next year. We see a strong possibility that private consumption will contract next year. On the other hand, we consider that the recent weakening of the euro exchange rate, if it persists, could provide somewhat of a boost to Italian exports.


U.K. Continued signs of weakness, such as rising unemployment and deteriorating business surveys, are weighing on the U.K.'s economic prospects. Our forecast from August already reflected our concerns regarding 2012, and we have revised it marginally downward again this month to 1.7% for real GDP growth (from 1.8%). A key uncertainty in the U.K. outlook is the possible impact of a new round of quantitative easing that we believe the Bank of England (BoE) seems about to launch. In response to the intensification of the financial crisis in the final part of 2008, the BoE adopted unconventional monetary policy measures, known as quantitative easing (QE), consisting of financial assets purchases financed by central bank money. Between March 2009 and January 2010, £200 billion of assets were purchased, overwhelmingly government securities, and the equivalent of about 14% of GDP. In its latest Quarterly Bulletin (Q3 2011), the BoE provides what we view as rather positive estimates of the impact of QE on financial markets and the economy. It suggests that the £200 billion of QE depressed gilt yields by about 100 basis points. QE was also associated with a decline in the sterling effective exchange rate of 4%, a help for U.K. exports, according to the BoE bulletin. More broadly, the BoE estimates that QE had a peak effect on the level of real GDP of about 1.5% and a peak effect on annual consumer price index (CPI) inflation of about 1.25%. We believe that in view of the renewed weakness of the domestic economy, the BoE will start a second phase of QE at the end of this year, possibly of a comparable size with that of 2009-2010.

Their conclusion:

The Likelihood Of A Second Dip Is Rising


Signs of weakening are abundant in European economies. Yet, we still believe that robust demand from emerging markets--albeit not as strong as in 2010--as well as resilient consumers in key markets such as France and Germany and the continued support of monetary policies will help avoid a new recession (double dip) next year. Nonetheless, the downside risks should not be underestimated, in our view. They could conceivably come from financial markets through a fresh rise in long-term interest rates, or from the real side in the form, for instance, of lower growth in emerging markets.

The only question worth asking: does this translate into a warning for the rating of the UK and France? Everything else is noise.

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redpill's picture

They never left the first "dip", they just had illusory statistics that claimed so, backed by nearly unlimited funding from the US Federal Reserve

Long-John-Silver's picture

Full Blown Economic Depression is obvious

Let them all fail's picture

Its sure annoying when people reply to comments at the top of dialogue but actually are not replying to the comment at all, rather just trying to get their comment towards the top...makes the flow of conversation quite tough to follow...ugh

GeneMarchbanks's picture

the S&P site up and running? Retards....

midtowng's picture

Exactly what I was thinking.

It's like being neck deep in water and saying, "I think the boat is sinking."

Ruffcut's picture

The final cliffdive is also possible. But I doubt that. THe next dip is opportunity for insiders.  There is a ton of cash raising possibility with ponziing the market. Please, don't forget that........

Zero Govt's picture

this is about as early a call as an idiot can get ..what will S&P do next, call midnight at 6am next morning!

Racer's picture

as they are so timely in their ratings and reviews...

this confirms that all of the EU is now mired in a deep depression

LawsofPhysics's picture

What a tangled web has been weaved. How can Europe contract without taking the U.S. with it?  Damn this finite planet and its finite resources.  

The Limerick King's picture



The global depression is on

All market growth soon will be gone

All the green shoots

Have been trampled by boots

An end to the world's biggest con

Al Huxley's picture

Wow, you really are the Limerick King - Kudos.

Edward Fiatski's picture

Downgrade of France is nuclear holocaust. Literally. Prepare the bombers for take off... we need some physical, KINETIC stimuli - I want people running for their fucking lives, digging trenches, assembling WAR MACHINES in order to survive - best recovery we could ever dream of, I shed a tear of joy at the imagery.

Confused's picture

I believe you forgot the </sarc>.


If not. I now know whose comments to ignore.

Edward Fiatski's picture

Oh, no, no, no, no, no, no. If people are too stupid to get bent over by extortionist looting, thus sacrificing the future of their children, surely, they will buy whatever is being sold by the same banks in terms of War scenarios.

LawsofPhysics's picture

Don't wake the sheep.  Besides, what does France have that any other countries want?  I doubt the trenches will be dug in France, unless it is better to drink wine, eat cheese, and make love in them.  Wars will continue to be about resource allocation, the song remains the same with a notable crescendo.

Edward Fiatski's picture

Aha! But I didn't mention France as the main theatre; we load the unemployed peasantry into cargo planes and send them... somewhere, where there's a lot of unemployed peasantry with no prospect of work - China!

Confused's picture

Certainly you forgot the </sarc>.

english serf's picture

Cheese eating surrender monkeys! Fuck the french

Confused's picture

Your comment suggests you took no part in the system.


Like all the other Johnny-come-lately's posting that claim they had no part, I suggest you take a long hard look at your comment.

Edward Fiatski's picture

I indeed took no part in the scam due to my inability to take on huge debts because of my age at the time, and now I would like to see at least one of the parties hanged, burned, quartered - no matter, for the current predicament the world is in.

Fortunately, I know how the story ends. :)

Confused's picture

No mortgage?

No credit cards? (regardless if you keep a balance)

No student loans? (Let me guess, you worked two jobs full time to make it through college)

 If you answered yes, you fed the system. Thus you were a part.

I too would like to see someone responsible for the truly horrible things be held accountable. But your comments suggest something else.

You know how it ends? Then please share.

Edward Fiatski's picture

You're here for the message, not the messenger's personal life story, and I've given you the satirical re-cap of how it ends.


Rocket scientists think if they take down the Euros, U.S. dollar will quit sliding, and they can short the shit out of all things Euro to make up for no bonuses at year end. Short sighted motherfuckers will tear down the world for a few bucks in their jeans now. " Macro economics? We don't need no steeenking macro economics! " Google " The goose that laid the golden egg " Real world economic theory study 101.

slaughterer's picture

S&P: a bear's best friend.  Hugs and gold for S&P from ZH.

Shizzmoney's picture

C'mon, just crash already.  We can't go up until we hit rock bottom here.

r101958's picture

Term: 'double-dip' = the most disingenuous term created.

slaughterer's picture

S&P: same probability rating (40%) as Jan the Hat.  Shows you who is still king of Wall Street. 

oogs66's picture

french downgrade coming...

r101958's picture

Current rally funded by paper PM sell-off .......again.

doomandbloom's picture

S&P will not exist in a few months time ( the ratings side of the business)

If there is no rating agency, will their downgrade count as a downgrade?

Nascent_Variable's picture

The situation in Germany vividly illustrates the problems of globalization and centralization.  On its own, Germany weathered the crisis quite well.  Its fundamentals are stronger than any other western nation.

Now, because it tied its economic present and future to the eurozone, it will end up leading the way to a double dip.  Centralization and globalization brings down strong economies and turns weak ones into parasites, all for the advantage of the banksters and their cronies.

Edward Fiatski's picture



Dick Darlington's picture

10-04 12:03: Irish budget deficit (Sep) EUR20.6bln vs. EUR 13.4bln a year ago

Oops! And S&P STILL keeps Ireland and Portugal in "investment grade" ratings. Unbelievable... Btw, Portugal and Spain are badly missing their budget targets according to the latest figures.

I doubt they have balls to downgrade France because they know what it means for the monster CDO.

But maybe they will downgrade Belgium now that it's proven twice that Dexia has no clothes. Belgium was put on watch for dg LAST december so it's about time to finally make the move.

lapedochild's picture

What is currently levitating the S&P?

Edward Fiatski's picture

No volume post-bernanke opiate withdrawal, usually followed by the bliss of free-fall.

Al Huxley's picture

The intraday - "thank god the selling's finally stopped and my account balance has stopped dropping and if it just gets back to 1120 I'll close out my position" head-fake.

SheepDog-One's picture

Bankers and rating agencies definition of recession- 'The bankers are in trouble and out of ways to scam and skim off the top for themselves'...thats a 'recession' in those peoples eyes.

PulauHantu29's picture

Weak euro os working in their favor.

300,000 unskilled refugees flooding in from North Africa working against them...as well as causing soaring violent crime I read.

ivars's picture

European is sure but they will try to devaluate/default themselves out during next years, may be 2013 already? While USA is Certain with no option to devaluate until 2015. 3 full crisis years.

vast-dom's picture

And by Janus and other miracles NASDAQ somehow in green???


Pass me some of that Jesus Juice and I'll eat my iPhone5 for some market transubstantiation!

clones2's picture

S&P = "Captain Obvious"

IH10's picture

Don't they mean massive depression?  Has "recession" become the new euphemism for economies falling into the depths of hell?

ivars's picture

Most likely only by the end of October DJIA will be stable under 10000. It is not a collapse that is happening today, just the unwinding of effects of QE2. Predictable since beginning of QE2:


The mistake in this February 6th chart today is 0%. Its spot on within the thicknes of the line I used to draw it.

However, long term picture with deflationary recession in the USA does not look good for DJIA stocks nor recession:


So its deflationary recession  till end of 2014 ( I have longer term predictions, just finetuning them, up to 2015).

After that , in 2015 the USA default on debt, and inflation. That might help to go out of recession, might cause ( even before the default) some wars.

The interesting thing now for me is to predict how much and when vs, what currencies USD will appreciate (EUR, GPB, RUB, YEN YUAN? ) , meaning that those currencies will buy less and less oil. Will they tolerate it or try to increase the values of  their currencies somehow (e.g. China moving to silver standard?)

More on currency rate forecats  later. Clearly , USD will appreciate almost against every currency in 2012-2014, being a reserve currency and mother of the USA debt that pays for everything.  It has already started.

parch702's picture

And what flavors would you like on the double dip?

saiybat's picture

Then it'll be a triple dip recesssion and quadruple dip recession. Whatever euphemisms they can come up with in place of depression. If the Mad Max shit happens they'll call it austerity.

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