While the lull in the euro-zone debt crisis has continued in recent months, the news on the region’s economy has remained distinctly downbeat. Despite some improvement towards the end of last year, activity indicators remain generally consistent with a deepening of the recession in the single currency area during 2013. We expect a 2% drop in euro-zone GDP, a much weaker out-turn than that expected by the consensus. This will both hinder the efforts of the peripheral economies to restore their public finances and maintain the opposition of core economies to further steps towards fiscal union. Against this background, there is a clear danger that the crisis re-escalates in 2013.
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