- October 1, 2012: Vol. 6, Number 9

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Rising to the Challenge: Investors Seek the Safety of Core but Growth in Core Europe Is Weak, So Performance Is Divergent

by Kasia Sielewicz

Uncertainty over Europe continued to be at the heart of investors’ worries during the summer as the risk of a euro break-up heightened, with attention shifting from Greece to Spain. The scale and cost of keeping the euro zone together is evidently increasing, while the risk of contagion is high. Economic prospects for the euro zone remain bleak, dragging down performance in the rest of Europe. The euro zone is forecast to have a mild recession in 2012, returning to subdued growth in 2013. Core Europe is expected to struggle, with France and the United Kingdom faltering behind, with virtually no GDP growth in 2012 and only marginal growth in 2013. Germany is expected to grow, albeit at a much slower rate than in 2011. Output in Italy and Spain has been revised downward since the beginning of 2012, with a longer and deeper recession in Spain now anticipated.

Prospects in non–euro zone countries are more contained. In central and eastern Europe, all economies are expected to

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