Rating agency Standard and Poor's cut its forecasts for euro zone economic growth and inflation on Wednesday, blaming the "nosedive" in financial conditions since the start of the year.

S&P said it now expected the euro zone to grow at 1.5 per cent this year versus 1.8 per cent it had forecast back in November.

It made more substantial revisions to its inflation projections, saying in now saw it coming in at just 0.4 per cent this year, almost a third of the 1.1 per cent it had previously flagged. Next year it expects it to rise to 1.4 per cent but that too was trimmed down from 1.5 per cent.

“A nosedive in financial conditions at the start of the year has taken some wind out of the euro zone economy,” S&P’s chief European economist Jean-Michel Six said.

“In addition, we stress that central bank actions are having a diminishing impact on inflation and growth prospects,” he added, citing both the fall in commodity prices at the start of and a lack of support from governments in terms of reforms.

The economic forecasts do not have a direct impact on S&P’s sovereign ratings, although the shift in the fundamentals feed into underlying analysis.

The latest report also added that this month's signal from the European Central Bank that was shifting from interest rate cuts to newer forms of asset purchases meant the euro's long-running fall against the dollar may be ending.

Reuters