S&P highlights ‘fragile’ recovery in eurozone

15 Sep 14
Disappointing half year results have cast doubts on the sustainability of the eurozone’s recovery, ratings agency Standard and Poor’s warned today, although it acknowledged that some ‘green shoots’ were emerging.

By | 15 September 2014

Disappointing half year results have cast doubts on the sustainability of the eurozone’s recovery, ratings agency Standard and Poor’s warned today, although it acknowledged that some ‘green shoots’ were emerging. 

It said that the European Central Bank’s decision to tackle the threat of a triple-dip recession by cutting interest rates to 0.05%, while also discussing the idea of a full-fledged quantitative easing programme to lift growth, ‘was a proactive approach’.

The ratings agency’s report said three factors had underlined the ‘sluggish and uneven’ recovery: modest world trade growth, little sign of corporate spending picking up and more pronounced problems in Italy.  

S&P’s EMEA chief economist Jean-Michel Six said: ‘Economic conditions remained fragile across the eurozone, but as we’ve pointed out, some green shoots are emerging as well.

‘With doubt they are going to need a lot of watering to bloom, but the good news is that the ECB seems committed to playing the gardener’s role in the coming quarters. In our view, the ECB’s recent announcements vindicate our assumption that it is now committed to a much more proactive management of its balance sheet.’

The report also stated that S&P saw several indications that growth could pick up in the next few quarters, despite the gloomy outlook.

It said: ‘We think announcements by the ECB of further cuts to interest rates plus new targeted long-term refinancing operations and asset-backed securities purchasing programs could lift growth in the medium term, as in our view they pave the way for a full-fledged quantitative easing programme of bond purchases.’

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