December 12, 2012

LONDON, Dec 11 There is a 30 percent chance of severe recession i n Europe and the United States next year, though moderately rising growth is the likeliest outcome, according to the world's No. 2 reinsurer.

Swiss Re said on Tuesday its assessment reflected the risk of failure in efforts to fix the troubled euro zone and avoid the so-called fiscal cliff in the United States.

"The risk of a severe recession in Europe and the U.S. is fairly high," the world's No.2 reinsurer said on Tuesday in its annual economic outlook report.

"The key region of weakness is in the euro area."

Greece and other critically-indebted euro zone nations are pushing through unpopular spending cuts to shore up their creditworthiness and remain within the single currency area, helped in some cases by international bail-outs.

In the United States, legislators are in urgent talks to avoid tax hikes and spending cuts worth up to $750 billion that are due to begin in January and that could hobble economic growth.

A euro zone break-up or a failure to avert the U.S. fiscal cliff would derail Swiss Re's baseline forecast for a moderate increase in economic growth.

It expects the U.S. economy to expand by 2.5 percent in 2013, up from 2.2 percent this year, and predicts 0.4 percent growth for the euro zone, compared with a 0.4 percent contraction in 2012.

Interest rates should stay at or near their current low levels into 2015 as central banks wait for firmer evidence of recovery before raising borrowing costs, Swiss Re said.

That will keep up pressure on the insurance industry's investment income, already heavily eroded in the four years since rates were slashed to prop up economies during the 2008 crisis.

However, sales should improve as the economy picks up, led by the emerging markets of Asia and Latin America, Swiss Re said.

The reinsurer predicts growth in life and non-life insurance premiums next year of 2.2 percent and 3.5 percent respectively, up from zero and 3 percent in 2012.

(Reporting by Myles Neligan; editing by Stephen Nisbet)

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