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Europe remains weak - S&P highlight credit rating dangers in 2013

by Dr Stephen J Nash | Jan 30, 2013

This article summarises the dangers to European growth and also notes that we are not alone in our concerns as Standard and Poor’s have recently highlighted.

IMF and OECD analysis

Recently, the International Monetary Fund (IMF) issued a document that illustrates the many risks that face advanced economies. This is not just a routine warning; it is a warning to the members of the IMF that global growth is precarious for many important reasons. In particular, the IMF estimates that most countries will be experiencing slow growth as a result of further European stress. It looks like the question is not whether Europe will impact global growth more than it already has, but how much more. In terms of the risks to growth, the IMF thinks that the world economic recovery remains highly vulnerable, with Europe remaining in a “danger zone”. While investors might have thought that the European crisis was already over, the IMF are looking at the prospect of what an intensified Euro crisis might mean for the various regions of the world. (IMF, Group of 20, Global Risk Analysis, Annex to Umbrella Report for G-20 Mutual Assessment Process, Prepared by Staff of the IMF, June 2012, p.5).

More recently, the OECD supported the more cautious approach of the IMF with further revisions of growth, and warnings about the risks to growth, as follows:

After five years of crisis, the global economy is weakening again. In this we are not facing a new pattern. Over the recent past, signs of emergence from the crisis have more than once given way to a renewed slowdown or even a double-dip recession in some countries. The risk of a new major contraction cannot be ruled out. A recession is ongoing in the Euro area. The US economy is growing but performance remains below what was expected earlier this year. A slowdown has surfaced in many emerging market economies, partly reflecting the impact of the recession in Europe (Editorial, The policy Challenges: now and in the long term, p.4, OECD Economic outlook 92, Press Conference, Paris, 27 November, 2012, Angel Gurría Secretary-General & Pier Carlo Padoan Deputy Secretary-General and Chief Economist).

Standard and Poor’s (S&P) prospects for 2013

S&P have recently noted that they expect the ongoing European recession, to continue to weigh on credit ratings in 2013. Europe remains a clear and present risk to growth and S&P is just one of a string of authorities that are highlighting these risks (“Global Downgrades Prevailed In 2012; Downgrades Expected to Worsen in Europe in 2013”, dated 22 January 2013).


While the equity market has become complacent about the risks from Europe, many have not, including the IMF and the OECD. S&P are just another firm, who continue to highlight that the challenges from Europe this year will be large, and that more credit downgrades are likely, over 2013.