The second quarter slowdown increases the risk of a double dip recession in Europe but the region should escape with sluggish growth this year, Standard and Poor’s said yesterday in its latest forecasts.

The ratings agency lowered its forecast for eurozone growth to 1.7 per cent this year from 1.9 per cent, and to 1.5 per cent next year (1.8 per cent), after Eurostat reported 0.2 per cent growth for the region in the second quarter.

“Although most of Europe experienced a slowdown in GDP growth in the second quarter, we still anticipate that the region will escape a genuine double-dip recession,” said S&P in a research note.

“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,” it added.

S&P lowered its 2012 GDP growth forecast for Germany to 2.0 per cent (2.5 per cent). It now sees French growth coming in at 1.7 per cent in both this year and next (two per cent, 1.9 per cent).

For Britain, which is outside the eurozone, it sees 1.3 per cent growth this year (1.5 per cent) and 1.8 per cent in 2012 (two per cent).

S&P now forecasts the European Central Bank will keep its key lending rate on hold at 1.5 per cent until spring next year, instead of hiking rates to two per cent by year-end as it previously forecast.

Likewise it expects the Bank of England to keep its key lending rate at 0.5 per cent until the second quarter of 2012.