Bloomberg News

Europe Meltdown Seen Converging With Recession in Survey

September 29, 2011

(Updates with confidence data in eighth paragraph, German vote in 11th and Obama speech in 12th. For more on the Bloomberg poll, {POLL <GO>}. For more on the euro crisis, click on {EXT4 <GO>})

Sept. 29 (Bloomberg) -- Global investors anticipate Europe’s debt crisis leading to an economic slump, a financial meltdown and social unrest in the next year with 72 percent predicting a country abandoning the euro as a shared currency within five years, a Bloomberg survey found.

About three-quarters of those questioned this week said the euro-area economy will fall into recession during the next 12 months and 53 percent said turmoil will worsen in a banking sector laden with government bonds, according to the quarterly Global Poll of 1,031 investors, analysts and traders who are Bloomberg subscribers. Forty percent see the 17-nation currency bloc losing at least one member in the next year.

More than a third of participants say deteriorating European debt will derail the world economy over the next year, with the pessimism highlighting the pressure European policy makers face as they try again to fix their 18-month sovereign crisis. Stocks last week tumbled into their first bear market in two years and foreign leaders, including President Barack Obama, are urging European leaders to intensify their rescue efforts.

“It’s a bad crisis,” said Jean-Yves Chereau, a poll respondent and chief investment officer at Halkin Investments LLP in London. “Since the resurgence of troubles in Greece, you suddenly have a crisis of confidence and trust and that’s impacting markets and could hurt economies. Politicians need to move ahead pretty quickly.”

Cut Investment

Europe’s woes have reignited as Greece attempts to stave off default and spars with its European Union partners over whether it deserves the next tranche of aid next month. Euro- area lawmakers are also taking their time implementing a July overhaul of their rescue fund to give it more crisis-fighting tools, while investors question the ability of banks to withstand further market unrest as signs also mount that the economy is losing momentum.

Investors signaled the stresses are prompting them to shift money out of the euro area. Fewer than one-fifth of those polled said the EU’s market offers the best investment opportunity over the next year, about half the number that cited the U.S. Fifty- three percent identified the EU as offering investors the worst opportunities during the next year.

Fifty-six percent said they will reduce their exposure to the euro in the next six months and even one in three inside the region plan to. Half of all investors said they expect the Euro Stoxx 50 index to fall.

Economy Deteriorating

Economists at Pacific Investment Management Co., JPMorgan Chase & Co. and Royal Bank of Scotland Group Plc all said in the past week that the euro-area is entering recession. The European Commission reported today that confidence in the economic outlook this month dropped more than economists forecast to its lowest level since December 2009.

Eighty-eight percent of those surveyed by Bloomberg said the region’s economy is deteriorating. Almost half of Asian respondents said they expected Europe’s pain to spark a worldwide economic meltdown within the next year, compared with 34 percent in the U.S. and Europe.

“If the euro crisis continues to fester or become more dangerous, the cumulative effect of declining economic confidence and harsh austerity measures will tip the peripherals into certain recession,” said Akber Naqvi, a poll respondent and executive director at Al Masah Capital Ltd. in Dubai. “The ensuing chaos and banking crisis will almost certainly tip the whole region into a recession.”

German Vote

German lawmakers today approved an expansion of the euro- area rescue fund’s firepower, freeing the way for European officials to focus on what next steps may be needed to stem the debt crisis. Policy makers are studying how and whether to boost the fund through leverage.

“Some of the challenges that we’ve had over the last several months actually have to do with the fact that, in Europe, we haven’t seen them deal with their banking system and their financial system as effectively as they needed to,” Obama said yesterday.

As Greece struggles to impose the austerity needed to tap more international aid next month, 93 percent said the country will eventually default, up 8 percentage points from May. Fifty- six percent said Portugal faces the same fate, down 3 points. Sentiment toward Ireland also improved as 58 percent said bankruptcy would be avoided, four months after the majority bet otherwise.

Spain, Italy

Sixty-four percent said Spain will keep paying its bills and a similar number of respondents said the same of Italy. More than 90 percent said the U.K. and France won’t go insolvent.

Almost every respondent described Greece’s creditworthiness as poor, with more than half saying the same of Italy and Spain. By contrast, 38 percent said Germany’s was excellent and 45 percent said it was good. Fifty-three percent described their faith in Japan as “just fair” or “poor” and 59 percent gave the same rating to France.

Banks have also been hit. Eighty percent said the reputation of Paris-based Societe Generale SA worsened over the last six months and 71 percent said the same of compatriot BNP Paribas SA. Both vowed this month to trim their balance sheets after concerns about their sovereign-debt holdings made U.S. money-market funds reluctant to lend to them, crimping liquidity options.

UBS Reputation

UBS AG’s Sept. 15 announcement that unauthorized trading had cost it $2.3 billion left Switzerland’s biggest bank with a poorer reputation than six months ago, according to 90 percent of those surveyed. A majority said the incident was probably a single event rather than proof of a dangerous lack of regulation.

Seventy-four percent of poll participants said Bank of America Corp.’s credibility has diminished after it posted a record $8.8 billion quarterly loss and shook up management. About half said the standing of Goldman Sachs Group Inc. had lessened.

There was little change in the reputations of Barclays Plc, Deutsche Bank AG, Wells Fargo & Co., JPMorgan Chase, Morgan Stanley, Royal Bank of Scotland, Citigroup Inc. and HSBC Holdings Plc, the poll found.

The debt crisis is raising questions about whether the 12- year old currency bloc can maintain its current form. While 4 in 10 respondents said they expected a nation to leave within a year, a further 32 percent said a member would leave in two to five years. Fifty-one percent said the euro zone would collapse at some point although only 8 percent expected that to occur in the next year.

Fiscal Union

Still, 51 percent of investors said the euro zone’s likely future would feature a move toward adopting a common fiscal policy.

Policy makers were criticized for their performance and more than half of those polled said they anticipated civil instability including riots in the next 12 months. Only 11 percent said European authorities had handled their economic challenges the best, compared with 67 percent who cited U.S. officials.

Asked how they viewed certain leaders from an investment perspective, 59 percent said they viewed German Chancellor Angela Merkel pessimistically -- a reversal from the 55 percent who said they were optimistic about her policies in May. Seventy-one percent criticized French President Nicolas Sarkozy.

Cameron

Outside the euro-area, U.K. Prime Minister David Cameron split respondents, with 44 percent saying they were optimistic about the impact of his policies on the investment climate and 42 percent responding negatively. Sixty-three percent viewed him favorably. Australian Prime Minister Julia Gillard was regarded favorably by 36 percent of those surveyed.

Just over a month before Jean-Claude Trichet retires as president of the European Central Bank, poll participants were divided over whether they viewed him favorably or unfavorably, while 45 percent said the ECB’s policies had made little difference to the crisis. About a quarter said the central bank had played a constructive role in addressing the crisis; the same proportion said the bank’s actions had exacerbated the turmoil.

Trichet will be replaced on Nov. 1 by Bank of Italy Governor Mario Draghi, viewed favorably by 36 percent, about the same amount who said they didn’t know enough to give an assessment. International Monetary Fund Managing Director Christine Lagarde was praised by 58 percent of respondents. Seventy-three percent had an unfavorable view of News Corp. Chief Executive Officer Rupert Murdoch.

The quarterly Bloomberg Global Poll was conducted Sept. 26 by Selzer & Co., a Des Moines, Iowa-based firm. It has a margin of error of plus or minus 3.1 percentage points.

--Editors: Andrew Davis, Andrew Atkinson

To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net

To contact the editor responsible for this story: Andrew Davis at abdavis@bloomberg.net


Cash Is for Losers
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus