S&P stokes up fears of eurozone recession

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The Independent Online

The credit ratings agency Standard & Poor's (S&P) fuelled fears over Europe yesterday as it put the chances of a severe recession in the single currency bloc at 40 per cent.

S&P's best-case outlook for the troubled region this year is stagnation, but under the firm's "adverse" scenario it warns the eurozone could shrink by up to 2 per cent in 2012, with Italy the biggest casualty.

The gloomy forecasts came as the National Institute of Economic and Social Research called on Chancellor George Osborne to tear up deficit-cutting plans, and follow the warning by International Monetary Fund chief Christine Lagarde, pictured, that Europe's debt woes had put the global economy "in the danger zone".

S&P analyst Jean-Michel Six said a consumer spending freeze was among the biggest risks to the region as shoppers close their wallets in fear of rising unemployment, which hit a euro-era high of 16.5 million in December.

Consumers in the healthier German economy are likely to keep spending, in contrast with shrinking consumer demand in debt-laden states like Italy and Spain.

Yesterday, EU economic and monetary affairs commissioner Olli Rehn suggested the talks about agreeing a second financing package for Greece should be completed next week althought Federal Reserve chairman Ben Bernanke said the eurozone crises still threatened US growth. "Risks remain that developments in Europe or elsewhere could worsen."

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