August 30, 2011 / 12:02 PM / 8 years ago

S&P trims euro zone growth outlook

PARIS (Reuters) - Ratings agency Standard and Poor’s lowered its economic growth forecasts for the euro zone on Tuesday, but said the shared currency bloc was not headed toward a new recession.

A sculpture showing the euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt, April 1, 2010. REUTERS/Kai Pfaffenbach

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 percent in 2011 and 1.5 percent in 2012, down from estimates in July of 1.9 percent and 1.8 percent respectively.

For Germany, Europe’s biggest economy, S&P cut its 2012 forecast to 2.0 percent from 2.5 percent previously, down sharply from the 3.3 percent it expects to see this year.

It trimmed its forecasts for France to 1.7 percent 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 2.0 percent and 1.9 percent in 2011 and 2012 respectively.

S&P cut its 2012 outlook for Spain to 1.0 percent from 1.5 percent previously, still better than the 0.8 percent growth it forecasts for 2011.

Outside the euro zone, S&P trimmed its forecast for Britain, estimating its economy would grow 1.3 percent in 2011 and 1.8 percent in 2012, down from 1.5 percent and 2.0 percent 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.

Reporting by Leigh Thomas; editing by Patrick Graham

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