Europe Economy

40-50% Chance of Recession in Euro Zone: Goldman Sachs

The 17 European countries that make up the euro zone face a 40 to 50 percent chance of recession by the end of the year, economists at Goldman Sachs predict, adding that “at best, the European recovery looks to be weak and hesitant”.

Euros & Downward Graph
Steven Hunt

Goldman Sachs lowered its 2012 growth projections for the euro zone in August to 1.3 percent from a forecast of around 2 percent at the start of the year.

But the risks to that forecast are skewed to the downside, Goldman Sachs said in a research note.

“The escalation of the euro zone debt crisis, in conjunction with other shocks to the economy in the first half of the year (such as the oil price spike and the Japanese earthquake), has raised the prospect of a euro area recession,” the note said.

It added that “a simple probability model puts the chance of a recession in the Euro area at the turn of the year at around 40 percent – 50 percent.” Developments in euro zone business survey data, indicators of bank stress and assessments of the risk of recession in the US were the main reasons for the bank’s conclusion, it said.

Germany’s closely-watched business climate index, published by the Munich-based Ifo think tank, declined from 108.7 to 107.5 in September.

The forward-looking survey showed corporates see the future as increasingly ominous, Goldman said.

Goldman added that financial markets data, as reflected in equity prices, suggested an even greater likelihood of recession in the euro zone at around 50-60 percent.