Working with the Eurozone

The European debt crisis has intensified since July putting both Greece and Italy under extreme pressure as the internal economic situations in both countries continue to deteriorate.

After a 4.45% contraction in 2010, Greek GDP is expected to shrink 4.9% in 2011 and Global Insight is forecasting a further 5% contraction in 2012. For next year, all of the country's main indicators, except for net exports, will deteriorate further, unemployment will rise and private consumption will record an even larger decrease than experienced this year at 4.7%.

The level of uncertainty about the likelihood of Greece riding out the crisis is very high, in both the short and medium term. The risk of default, with incalculable consequences for credit exposure, remains high. The government's hands are tied as it is forced to cut the budget deficit to meet the requirements of the European Union and the International Monetary Fund.

Almost all Greek sectors are negatively affected by the downturn but retail, automotive trade and construction/construction materials are hardest hit. Business insolvencies are forecast at an increase of 30% in 2011 and 5% in 2012.

Across Europe, Italy suffered greater output losses than most of its peers during the first round of the crisis in 2009, and constitutes a major source of concern for Eurozone stability in the coming years, struggling with high levels of debt and below-average economic performance. Lack of sustainable economic growth is a major issue.

Both private consumption and industrial production are expected to contract and this will affect in particular the automotive, construction, construction materials and metals, consumer electronics, textiles, clothing and the paper sectors.

Expected default frequencies for listed companies in Italy are among the highest of the Eurozone countries and show a sharply increasing trend for 2012.

Bank lending across Italy and Greece has tightened affecting private business as well as investment and funding by public bodies so while trading can still be managed with these countries, it is important to monitor payment behaviour closely. Look for warning signs such as cancellation of orders, requests for extensions to payment terms and rescheduling of payments, especially in the sectors mentioned above.

Read more on Greece Country Report and Italy Country Report

Back to December 2011 Atradius ezine articles summary