S&P lowers euro zone forecast


The euro zone economy as a whole is set to contract 0.6 per cent this year as the bloc's debt crisis takes its toll on activity, credit rating agency Standard and Poor's forecast today, cutting its estimate from zero growth previously.

That is a slightly deeper fall than that seen by economists polled by Reuters in mid-July, who forecast on average that the euro zone would contract 0.4 per cent this year.

S&P also slashed its estimate for 2013, forecasting that the 17-member euro zone's economy would grow only 0.4 per cent, down from 1 per cent previously.

"We nevertheless also see a 40 percent chance of European economies sinking into a genuine double-dip recession in 2013," S&P chief European economist Jean-Michel Six said in a statement.

He cited possible risks as a downturn in some emerging markets holding back a recovery in world trade, a major euro zone country losing access to bond markets for a prolonged period, and a deeper slump in already weak consumer demand.

S&P forecast that the German economy, the euro zone's biggest, was set to grow 0.6 per cent this year and 1.4 per cent in 2013 while the French economy, the second-biggest, is headed towards growth of 0.3 per cent and 0.7 per cent respectively.

Meanwhile, S&P saw the embattled Italian economy contracting 2.1 per cent this year and 0.4 per cent next year while the Spanish economy was forecast to shrink 1.7 per cent and 0.6 per cent respectively.

With governments, households and companies all trying to reduce their debt loads simultaneously, Mr Six said the euro zone's deleveraging process was likely to endure several more years.

Outside of the euro zone, the British economy was seen eking out growth of 0.3 per cent this year and 1 per cent in 2013.