The Euro-area growth forecast for 2012 has been systematically lowered over the past few months. The October consensus forecast is currently 1.0%, but was above 1.5% just a few months ago. This compares with an anticipated growth rate of 1.6% in 2011 and a long-term average (since 1999) of 1.5%.
Within the 2012 consensus forecast range, the most optimistic forecast is 1.5%, while the most pessimistic is -0.5% (Capital Economics). The IMF (September) is projecting growth of 1.1%, while the IIF is at 1.3%. HSBS is at 0.7%, Deutsche Bank 0.8%, JPMorgan 0.9%, UBS 1.0%, Barclays Capital 1.1%, and Merrill Lynch 1.4%.
All of the above data (irrespective of which is your favourite or biased forecast perspective) suggests that the Euro-area growth will slow into 2012, and runs a high risk of experiencing a return to outright recession conditions.
During the current roadshow, a number of people have asked for a breakdown of the contribution to the Euro-area’s growth forecast in 2012. Given how small many of the Euro-area economies are, their economic performance has very little real impact on the overall GDP performance of the region (this does not necessarily apply to their impact on the financial markets or overall economic sentiment). This certainly applies to Austria, Finland, Ireland, Slovakia, Malta, Cyprus, Estonia, Portugal and Greece. Each of these economies are not expected to contribute or detract more than 0.05 percentage points to the Euro-area growth forecast in 2012.
In contrast, the growth forecasts for Germany, France, Spain, Netherlands, Belgium and Italy will have a material impact on the overall economic performance of the region, especially Germany, France and Italy. Currently, Germany is forecast to grow by a mere 1.3% in 2012, well down from an expected 2.9% in 2011 and 3.7% in 2010. Similiarly, France is forecast to grow by 1.2% in 2012, down from 1.6% in 2011 and 1.5% in 2010. Italy’s GDP growth is forecast at only 0.5% in 2012, down from 0.7% in 2011, and 1.3% in 2010. Together Germany, France and Italy comprise 65% of Euro-area GDP.
All of the above data suggests that the Euro-area can avoid an outright recession in 2012 if Germany and France continue to grow at more than 1% and if Italy can avoid a recession. The downside risks are high.
Download the presentation slides