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S&P cuts Eurozone growth estimates

London, August 31, 2011

Ratings agency Standard and Poor's has lowered its economic growth forecasts for the euro zone, but said the shared currency bloc was not headed toward a new recession.

Public and private institutions have been scrambling to revise down their growth outlooks for Europe as a stream of weak data have pointed to sharply slowing activity in recent months.

S&P said in a new report it forecast growth of 1.7 per cent in 2011 and 1.5 per cent in 2012, down from estimates in July of 1.9 per cent and 1.8 per cent respectively.

For Germany, Europe's biggest economy, S&P cut its 2012 forecast to 2 per cent from 2.5 per cent previously, down sharply from the 3.3 per cent it expects to see this year.

It trimmed its forecasts for France to 1.7 per cent in 2011 and 2012, in line with recently downwardly revised French government estimates. Previously, S&P had forecast the euro zone's second-biggest economy would grow 2  per cent and 1.9 per cent in 2011 and 2012 respectively.

S&P cut its 2012 outlook for Spain to one per cent from 1.5 per cent previously, still better than the 0.8 per cent growth it forecasts for 2011.

Outside the euro zone, S&P trimmed its forecast for Britain, estimating its economy would grow 1.3 per cent in 2011 and 1.8 per cent in 2012, down from 1.5 per cent and 2 per cent respectively.

Despite the bleaker outlook, S&P did not see Europe sinking back into recession.

'We continue to believe that a genuine double dip will be avoided given the still existing avenues for growth, although we recognize that downside risks are significant,' S&P said in a report. 'In particular, we will closely monitor trends in consumer demand over the coming quarters,' it added.

In light of the deteriorating economic outlook, S&P said it now expected the European Central Bank to keep interest rates on hold through the end of the first quarter of 2012. Markets have priced out any chance of a rise in ECB rates for the foreseeable future.-Reuters




Tags: S&P | growth | Eurozone | rating agency |

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