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July 24, 2012

Rating Agency Concerned About Worsening Credit Outlooks

by William Gallo

A major financial services agency says ongoing worries over the eurozone crisis and a recent increase in negative credit outlooks continue to hamper the global economic recovery.

The New York-based financial ratings agency Fitch Ratings said in a report Tuesday that negative credit outlooks roughly doubled in the last six months in the sovereign, international public finance, insurance, and financial institution sectors.

At the root of the problem, the agency says, is the deepening European debt crisis. Trevor Pitman, a regional credit officer for Europe and East Asia-Pacific for Fitch, says the crisis is "likely to be prolonged."

"We don't think the eurozone is going to break up, but the challenges in dealing with the eurozone crisis continue to be significant and it is going to take some time still for policy action to be taken," he said.

Fitch says fears of a potentially devastating Greek exit from the eurozone have subsided following June parliamentary elections in Greece. But it warns the larger crisis could persist until European leaders come up with a "credible and substantive" plan for greater integration.

In the meantime, Fitch says the latest negative indicators show that the "depth and magnitude" of the global economic downturn has exceeded initial expectations.

The ratings agency has revised down its global growth projections successively over the past 12 months. It forecasts global GDP growth to slow to just 2.2 percent in 2012, down from 2.7 percent in 2011.