Moody's Analytics Warn of 'Double Dip' Recession in Euro Zone

November 29, 2012 11:54 AM EST
Moody's Analytics said Thursday that it expects Euro zone GDP to stop falling in 2013, although risks remain.

"We expect Euro zone GDP to grow 0.2% in 2013, which marks a mild improvement compared to the -0.5% GDP estimate for 2012. However, significant downside risks remain that could send the region into recession," notes Petr Zemcik, Director of European Economic Research for Moody's Analytics.

Germany is the lone bright spot. Moody's analytics expects domestic demand in Germany and surprisingly stable external trade to enable it to achieve positive GDP growth. They also expects French GDP growth to settle in mildly positive territory at 0.4%. However, GDP in Spain and Greece is expected to remain negative in 2013, at -1.5% and -4.2%, respectively.

Two key events will shape economic activity in the region in 2013, they said. First, whether Spain will apply for bailout funds, which would make its debt eligible for purchase by the ECB, and could relieve some pressure on Euro zone growth. Second, the potential for a Greek exit from the Euro zone. "If Greece leaves the currency union, Moody's Analytics expects that Euro zone output would decline by 4.5% in 2013," continues Zemcik.

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