Heading for another recession

Last week proved to be another rollercoaster week for Greece. We now think that the Government may end up defaulting within months or perhaps even weeks. With concerns about banks’ solvency likely to increase as problems in the highly indebted economies intensify, banks could soon be forced to borrow more from the ECB and reign in their lending. All this, coupled with the recent weak activity data, means that we now expect the euro-zone economy to contract by about 0.5% next year and 1.0% or so in 2013.