What’s Important in the Financial World (3/26/2013)

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Shrinking European GDP

Standard & Poor’s has put another nail in the coffin of the prospects of an eurozone recovery. The rating agency expects the region’s gross domestic product to shrink this year and recover almost not at all in 2014. This means that, without stimulus dollars for the weakest nations, the severe recession in southern Europe could continue for years. If so, Cyprus may not be the region’s last disaster.

In its “Eurozone Outlook for 2013: Finding a Balance Between Deleveraging and Growth,” the agency reports:

Standard & Poor’s economists believe these difficult financial conditions will likely translate into another year of negative growth for the eurozone, with the prospect of only a weak recovery in 2014. We now forecast GDP in the eurozone will decline by 0.5% this year and bounce back by a still modest 0.8% in 2014. This is slightly down on our previous forecast for eurozone growth this year of negative 0.1%.

Cypriot Bank Runs Expected

Cyprus’s Finance Minister Michael Sarris told the BBC that large depositors with money in the nation’s banks could lose up to 40% in taxes and levies, much more than has been assumed recently. The cut was expected to be 15% or so. The much larger amount likely would yield most of the money Cyprus needs to lock in aid from the European Union, European Central Banks and International Monetary Fund. However, it also will cause a collapse in the nation’s banking system, which is a process that already¬†has begun. Most experts expect that when Cyprus opens its banks, depositors will attempt to take out whatever they can. According to Reuters:

Cyprus’s Finance Minister Michael Sarris said on Tuesday big depositors in Cypriot banks could lose about 40 percent of their deposits as part of a 10-billion euro international rescue plan.

“It could be in that neighborhood but I do not want to anticipate it,” Sarris told BBC radio, adding the exact figure was yet to be decided. “But what I have seen suggests a number in that neighborhood.”

787 Dreamliner Test Flights

Boeing Co.’s (NYSE: BA) 787 Dreamliner is aloft again, as test flights of the troubled plane have started. Regulators still do not know what caused the battery problems that grounded the plane. According to CNN Money:

Boeing’s troubled 787 Dreamliner completed a two-hour flight Monday, in a first test of the aircraft’s redesigned battery system.

The brief flight, which departed from Everett, Wash., took the plane along the Pacific coast into Oregon before returning to land at Paine Field. According to Boeing, the flight went “according to plan.”

The company did not say what “according to plan” means.