Drop in oil demand forecast by International Energy Agency due to European debt, risk of global recession, EU sees only .5 GDP for eurozone in 2012

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11/10/11, "Eurozone's growth has stalled, says EU," BBC

"The European Union has drastically cut its growth forecast for the eurozone in 2012,

• from 1.8% down to just 0.5%.

"Growth has stalled in Europe and there is a risk of a new recession," said European Commissioner Olli Rehn.

The low growth makes it harder for Europe to escape its debt crisis, with Italy's position seen as unsustainable....

Announcing its revised growth forecasts, the European Commission predicted that if there was no change in political policy, Italian public debt would remain unchanged at 120.5% of GDP next year, before falling to 118.7% in 2013.

The commission also forecast that next year, Greece would see its debt level rise to 198.3% of GDP....

The continuing problems in Europe also saw the International Energy Agency

• cut its forecast for oil demand....

"Oil markets are inextricably linked to the deterioration in the European debt situation given the impact on financial markets, the heightened risk of global recession, and the

• corresponding potential loss of oil demand."...

"Europe has moved from a manageable crisis in Greece to a much bigger challenge in Italy," said Frederic Neumann from HSBC in Hong Kong....

Economists are concerned that the global banking system could still be affected, regardless of whether there is a resolution to the eurozone crisis.

"Whatever they come up with, it doesn't avoid a European recession," said Su-Lin Ong at RBC Capital Markets.

"Increasingly, there is a risk that it spills into the banking system and becomes an issue of credit, and the lifeline of economies freezes up again," she said....

Last month, in an attempt to ease concerns about the Greek debt crisis, eurozone leaders asked banks to raise more capital to protect themselves against any losses resulting from future defaults by Greece.

At the same time, banks also accepted a 50% loss on the money they had lent to Greece.

The fear is that if Italy's debt crisis worsens, similar measures may have to be taken by banks that are exposed to its debt....

As uncertainty about the outcome of the eurozone debt crisis continues, many investors have been ditching the euro and euro-based assets."

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