Fitch Ratings said today that it is too early to identify 'green shoots' of recovery in European structured finance performance, despite signs that the global economy is stabilizing.

Fitch expects headline economic growth to become evident during the last two quarters of 2009, but that the nature of the recovery will be weak and remain significantly below long-term growth trends.

"Unemployment is the most significant negative factor weighing on existing European structured finance assets," says Ian Linnell, head of structured finance for EMEA at Fitch. "With the unemployment rate across the euro area set to continue rising in 2010 and remain close to those highs in 2011, Fitch anticipates downward pressure on structured finance assets to remain
in place until late 2010 or 2011. However, the pace and intensity of downgrades are likely to slow reflecting the impact of previous negative rating activity as well as the economy stabilizing and the start of an anaemic recovery."

Fitch said that the cuts in interest rates alleviated consumer issues such as the affordability of their substantial debt burden in the short term and has as a result supported some arrears performance stabilization in RMBS and consumer securitization transactions.

Over the longer term, the effect of rising unemployment is expected to eventually render this stabilization a temporary respite.

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