S&P downgrade forecast for eurozone economic growth amid fears of global slowdown

The eurozone economy will grow slower than initially expected over the next two years, after a nosedive in financial conditions at the start of 2016 put growth under pressure, analysts at Standard & Poor's said on Wednesday (30 March).

Economists at the rating agency trimmed their growth projections for the eurozone economy from 1.8% to 1.5% this year and to 1.6% in 2017, citing a "sudden decompression" in the 28-country bloc economy, which followed months of market volatility between the end of 2015 and the beginning of 2016.

The sharp fall in equity prices highlighted fears about slower growth in emerging markets, especially China - and possibly in the US as early as the second half of 2016 - while the eurozone's recovery was left relying on consumer demand.

"Yet, since the end of February, global market sentiment has started to improve again and in Europe, the set of new accommodative measures that the European Central Bank announced was well-received," said Standard & Poor's chief economist for Europe, the Middle East, and Africa, Jean-Michel Six.

Standard & Poor's added it had also revised its headline inflation forecast, which now stands at 0.4% for this year versus an previous 1.1% estimate. Inflation in the eurozone is expected to reach 1.4% next year, slightly lower than the original 1.5% forecast.

"We continue to believe that the recovery's underlying fundamentals are more resilient than the financial markets have recently suggested, but not so strong as to bring growth back to its pre-crisis flight path," Six said.

The ratings agency was also eager to point out that central bank actions are having a diminishing impact on inflation and growth prospects. This was down to central banks fighting battles beyond their reach - such as low commodity prices and erratic swings in emerging markets currencies - and partly because they lacked "air support" from governments, such as structural reforms to boost competitiveness and the efficiency of labour markets.