Just how bad will the European debt crisis pan out? According to economists from Citigroup, sovereign and banking crisis in the Eurozone will lead to a protracted recession. They forecast the real GDP for Eurozone to contract for 6 consecutive quarters and not get back to previous peak levels for many years to come. Specifically, they singled out non-European companies with significant revenue exposure to the region, such as Johnson Controls, Paccar, Nikon, HTC and
As the Continental European Banks are amongst the most leveraged in the world, further deleveraging may weigh on credit growth in Central and Eastern Europe which is most reliant on Euro Bank financing. However, US and UK Financials are believed to be able to benefit from the plight of their Euro peers. Euro exporters and Emerging Market equities will outperform as they benefit from a weaker currency and easier policy.
At this juncture of writing, European leaders are racing against time to come out with a more convincing deal to resolve the continent's debt crisis. With the fate of the members and their financial system so closely intertwined, the leaders are doing everything they can to stop the fiscal body and currency from tumbling. With so much at stake, we think it's just a matter of time an agreement will be reached, followed by a relief rally.
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