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Wednesday, August 31, 2011

Risk of Double Dip in Europe Increases: S&P

High unemployment and the recent decline in stock markets pose a risk to spending, rating agency Standard & Poor's wrote on Tuesday in a report headlined 'Slowing Growth in Europe Increases the Risk of a Double Dip.'

Downside risks "are significant" and the rating agency will "closely monitor" trends in consumer demand in the coming quarters, Jean-Michel Six, Standard & Poor's chief economist for Europe, said in the report.

"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," Six added.

Consumer demand could modestly support growth in the coming months, with relatively low-leveraged households in parts of the euro zone likely to spend, the report said, but added that the outlook was cloudy.

"Overall, we believe that the second-quarter weakening in most European countries casts new concerns about the medium-term growth outlook over the next 18 months through 2012," the report said. "After hitting a trough in the middle of 2009, Europe's economies have been struggling to recover the ground lost in the first phase of the crisis."

Growth will remain unevenly distributed among European countries, with only Germany having come back to its pre-crisis growth level at the end of the second quarter this year, the S&P report showed.

Strong demand from emerging markets will be one driver of growth for European economies, with imports from developing nations reaching historical highs in the first quarter of this year, the report said.

Central banks in emerging markets may halt their tightening measures on the back of the slide in commodity prices, boosting growth further, it added.

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