S&P Trims Euro Zone Growth Outlook

Reuters

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

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

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

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

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