Bangkok--31 Aug--Standard & Poor's
Europe should still escape a double-dip recession, despite the slowdown in GDP growth that most European countries experienced in the second quarter of 2011, says Standard & Poor's Ratings Services today in the report: "Slowing Growth In Europe Increases The Risk Of A Double Dip".
"We continue to believe that a genuine double dip will be avoided because we see several sources of continuing growth over the next 18 months, including still buoyant demand from emerging markets and an ongoing recovery, albeit sluggish, in corporate capital spending," said Jean-Michel Six, Standard & Poor's chief economist for Europe. "Nevertheless, we recognize that downside risks are significant. In particular, we will closely monitor trends in consumer demand over the coming quarters."
The report says consumer demand could stay modestly supportive of growth over the coming months, at least from relatively low-leveraged households in parts of the eurozone. Still, high unemployment and the recent significant decline in equity markets pose significant downside risks to spending.
Accommodative monetary policies by central banks have been effective, and, within the euro system have helped to prevent a liquidity crisis. Nonetheless, we note that the impact of these policies on the real economy has been limited.
Given fresh concerns about the risk of a double dip in the eurozone, and continued worries about the outlook for sovereign debt in southern Europe, Standard & Poor's now thinks it likely that the European Central Bank will postpone any further interest rate hike until the spring of 2012. We now envisage the ECB interest rate staying on hold through the end of the first quarter of 2012. We anticipate that the Bank of England will keep its policy rate on hold at its current level of 0.5% until the second quarter of 2012, and raise it in the second half of next year to 1% by year-end.
As a result of the weak second-quarter results, and reflecting the headwinds that we envisage European economies will still face over the next 18 months, Standard & Poor's has cut its GDP growth forecast for the eurozone to 1.7% in 2011 and 1.5% in 2012, compared with 1.9% and 1.8%, respectively, in our July forecast. For Germany, we now envisage a GDP growth rate at 2.0% in 2012, compared with our previous forecast of 2.5%. In France, we envisage GDP growth of just 1.7% in both 2011 and 2012 (2.0% and 1.9% previously). In the U.K., we now expect a GDP growth rate at 1.3% in 2011 and 1.8% in 2012 respectively (down from 1.5% and 2.0%).
The report is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to
[email protected]. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4009.
Media Contact:
Mimi Barker, New York (1) 212.438.5054,
[email protected]
Analyst Contacts:
Jean-Michel Six, Paris (33)-1-44-20-67-05
Matthew McAdam, London (44) 20-7176-3541