Back
9 Apr 2013
Forex Flash: Europe set for a deeper than expected recession - Nomura
FXstreet.com (Barcelona) - Nomura economists believe that fiscal tightening, financial deleveraging and sovereign debt market tensions should lead to a deeper-than-expected recession.
They believe that the previous OMT announcement reduced the probability of Spain calling for an ECCL soon, but they still believe it will happen eventually. Looking to markets, after a period of relative calm, the team believe that the backstop will be tested and the pressure should rebuild around weak sovereigns. In terms of GDP contraction, they see that higher non-performing loans and rising debt trajectories remain the key euro area challenges.
They write, “Because we forecast a weak economic backdrop, we retain our bias for lower ECB rates (in June). We expect inflation to be sticky in the UK, albeit back in the right ballpark, but to slip below target during 2013 in the euro area. The BoE aggressively announced QE, liquidity and funding support in 2012. We see a bias toward doing more in 2013.”
They believe that the previous OMT announcement reduced the probability of Spain calling for an ECCL soon, but they still believe it will happen eventually. Looking to markets, after a period of relative calm, the team believe that the backstop will be tested and the pressure should rebuild around weak sovereigns. In terms of GDP contraction, they see that higher non-performing loans and rising debt trajectories remain the key euro area challenges.
They write, “Because we forecast a weak economic backdrop, we retain our bias for lower ECB rates (in June). We expect inflation to be sticky in the UK, albeit back in the right ballpark, but to slip below target during 2013 in the euro area. The BoE aggressively announced QE, liquidity and funding support in 2012. We see a bias toward doing more in 2013.”