Bangkok--28 Aug--Standard & Poor's A flurry of fresh economic data suggests that initial expectations of Europe remaining relatively immune from the U.S. slowdown were overly optimistic, according to the latest economic forecast from Standard & Poor's Ratings Services. The report explores the headwinds that European economies currently face, from slower growth in world trade to an overvalued euro, from stagnating real incomes for consumers to a fall in asset prices. "As a result of this new negative data, consumer and business surveys consistently show that the fear of an actual recession dominates," said Jean-Michel Six, chief economist for Europe. "With inflation doggedly remaining high, the question remains: Will Europe enter stagflation--stagnation plus high inflation--or even worse a genuine recession?" With GDP growth in the Eurozone contracting at a 0.8% annual rate in the second quarter, this indicates that a major slowdown is about to occur in the second half of this year. "We consider the outlook for inflation in the next 12 months to be probably the most critical variable for Europe's economies," Mr. Six noted. "Indeed, a deceleration on the back of lower oil prices would create a very different environment for monetary policies and provide a relief for hard-squeezed consumers." Until then, however, Europe should brace itself for a period of stagflation, although within this overall picture some diverging trends will occur. According to Mr. Six: "While Germany and to a lesser extent France are likely to show some resilience thanks to strong fundamentals, the Spanish economy is bound to experience at least two quarters of negative growth, which would qualify it as being in a technical recession." He added that the elevated level of household debt and the sharp downturn in housing that we forecast suggest that the U.K. is more exposed to a true recession than the Eurozone considered as a whole, although we think this shock will be less dramatic than previous recessions in the early eighties and nineties. RatingsDirect is the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com. The standard version of this article is part of our standard Global Fixed Income Research content. The premium version contains expanded analysis of the article's most significant points, typically broken out by sector and region. Also in the premium version are in-depth charts and tables, the underlying data of which are available for download. Ratings information can also be found on Standard & Poor's public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search. Members of the media may request a copy of this report by contacting the media representative provided. Media Contact: Adam Tempkin, New York (1) 212-438-7530 [email protected] Analyst Contacts: Jean-Michel Six, Paris (33)-1-44-20-67-05 Armelle Sens, Paris (33) 1-4420-6740 Standard & Poor's, a division of The McGraw-Hill Companies (NYSE:MHP), is the world's foremost provider of financial market intelligence, including independent credit ratings, indices, risk evaluation, investment research and data. With approximately 8,500 employees, including wholly owned affiliates, located in 23 countries and markets, Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, visit http://www.standardandpoors.com. Key Contacts: Americas Media Relations: (1) 212-438-6667 media_ [email protected] Americas Customer Service: (1) 212-438-7280 [email protected]