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The impact of the current eurozone turmoil will not be seen until 2013, with £1.6 trillion likely to be wiped from bank balance sheets, Ernst & Young has warned.
Unsuccessful short-term quick fixes for troubled European banks will, according to the firm, see non-performing loans reach record highs next year forcing financial institutions to realise their losses and cut back on lending.
E&Y anticipate a contraction of 0.6% in GDP for the eurozone in 2012 and modest growth of just 0.4% in 2013.
Andy Baldwin, leader of financial services for Europe, Middle East, India and Africa at E&Y, said: ‘Investors are frustrated with short-term quick fixes to the sovereign debt crisis and are looking for a more fundamental solution. The eurozone financial services sector continues to be hit by a combination of the deteriorating economy and the recurrent crises of confidence in the market. While the effect of this on bank balance sheets in 2012 is worrying, the real impact of this year of eurozone turmoil will not be seen until 2013, when non-performing loans will hit harder than many are expecting.’
The firm also believes that around half of any investment in the eurozone over the next 20 years could well be absorbed into pension funds.
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