S&P: market Confidence in the Eurozone’s recovery is under threat

"Volatility in the financial markets is hitting the European banking sector hard, adding to the downside risks to the eurozone's economic outlook", Standard & Poor's (S&P) said in a report. "The eurozone economy has been recovering since second-quarter 2013, but so far the turnaround has been uneven and fragile compared to historical  standards–mainly because of muted investment growth," said Standard & Poor's economist Sophie Tahiri. 
Prior to the very recent financial market turmoil, S&P had expected only moderate investment growth of 2.6% in the eurozone this year because of weak global external demand, subdued domestic demand prospects, and the need to deleverage in the nonfinancial private sector. Indeed, household and nonfinancial corporations still bear a heavy burden of debts that they took on in boom times and still represented close to 205% of GDP in third-quarter 2015. 

For S&P the large stock of nonperforming loans (NPLs) in Ireland, Italy, Spain, and Portugal represents a handicap to the transmission of monetary policy. As a result, credit growth in the eurozone private sector has remained subdued, growing by a meager 0.9% year on year in December. 

While S&P continues to expect domestic demand to remain resilient this year, a number of uncertainties are mounting that could threaten consumer and business confidence, eat into credit activity, and delay investment decisions: worsening emerging-market economic prospects, low oil prices, geopolitical tensions, a possible Brexit, and financial market volatility, among others. Growing concerns about the strength of the banking sector in the eurozone, together with a widening in spreads in the periphery sovereign bond market, could weaken the recovery in credit and investment.