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Moody's: slower growth in Europe could spark ratings downgradesUpdated: 23-08-2010 | Economy

Slower economic growth in Europe might spark downgrades to credit ratings for countries on the continent, as any slowdown could weaken the ability of individual countries to absorb additional shocks to the system, said, yesterday, Moody's Investors Service in a report, The Wall Street Journal reports. The ratings agency said that the fiscal and economic adjustments necessary to stabilize government debt ratios are likely to be difficult and painful.

"Given the magnitude of the fiscal challenge and the need to sustain tight fiscal policy for several years, the risk to economic growth is clearly a downside risk for sovereign ratings," the European Sovereign Outlook report said. Moody's also noted the divergence continuing to spread as European countries cope with their individual fiscal positions. "Another challenge is the need to manage the fallout from the wide discrepancies in economic and fiscal performance over the past few years," it said. In this, the process of deleveraging might also be a specific danger to the ratings of certain countries. "Those countries that are facing persistently strong deleveraging could experience renewed negative pressure on their ratings in the future, depending on how long the process lasts," Moody's said.

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