According to senior analysts at Morgan Stanley, Euroland should see economic growth pick up during the second quarter of 2003. In some cases, this recovery has already begun. Securitization is likely to continue to play an important role as other forms of funding becoming increasingly challenging to arrange.

For continental Europe, growth will be driven by consumer spending and corporate investments whereas in the U.K., consumer spending is likely to slow down, and the weakness in domestic demand will need to be picked up by additional export demand. "All in all we expect the Euro area economy to accelerate from 0.4% GDP growth this year to 1.9% next year, and, in the U.K,. we expect a more moderate acceleration from 1.7% this year to 2.4% next year," said the analyst.

According to Standard & Poor's, funded securitization reached volumes of E14.9 billion (US$16.8 billion) from E12.9 billion (US$14.5 billion) recorded at the same time last year. "The pipeline of transactions appears strong for most of the major European ABS sectors such as lease, credit card and auto loan deals for the rest of this year," said Chris Such at Standard & Poor's in his report on the sector. The established players will continue to explore new assets and, at the same time, a new wave of issuers is expected to enter the market.

So far this year, despite the large amount of issuance experienced in the first half, issuance has been better timed, with a better supply pattern that has led to improved pricing spreads. According to Dresdner Kleinwort Wasserstein, six master trust issues have been placed already this year, but as industry players anticipated, the largest originators have begun to coordinate their issuance.

On the government side, Italy has forged ahead with its SCIP and INPS programs. An increase in regional government securitization is still anticipated, despite concerns that such one-off measures will only offer a temporary stall to the mounting debt burden Italy is experiencing. S&P's earlier this year raised concerns that one-time debt-reducing securitizations should not act as substitutes for recurrent measures that properly address the country's fiscal deficit (see ASR 1/20).

With its latest four-year economic plan unveiled, Italy hopes to adjust the budget deficit to 1.8% of GDP next year, falling in line with the Euro zone stability pact. However, a significant portion of the budget financing is expected to come from securitization deals and analysts have warned that unless securitizations lead to the efficiency gains in the management of public sector assets, one-off debt reduction through securitization is unlikely to structurally benefit the country's financial position in the long term.

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