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Eurozone economy to grow below potential in 2020, S&P Global Ratings says

The eurozone economy will expand below potential in 2020 as weak external demand will continue to offset strong domestic factors like household spending and labor market conditions, S&P Global Ratings said in a report.

The rating agency projects that the bloc's GDP growth rate will slow to 1.0% in 2020 from 1.2% in 2019 before returning to 1.2% in 2021.

"Risks to growth remain external and on the downside. Growing protectionism, the slowing Chinese and American economies could weigh on growth," S&P Global Ratings EMEA Chief Economist Sylvain Broyer said.

However, S&P Global Ratings expects that the service sector's strong performance and the low unemployment rate in the region will drive job creation and wage growth, which will in turn encourage household spending.

Germany's GDP growth is expected to remain lackluster at 0.5% in 2019 and 2020 before accelerating to 1.0% in 2021. The German economy is particularly vulnerable to a global trade downturn due to its manufacturing and export-oriented economy, which is why the rating agency expects low industrial output to weigh on jobs creation, household spending and investment.

Meanwhile, the French economy is expected to grow at 1.3% in 2019 and 2020, bolstered by strong domestic demand and a resilient service sector. Low inflation will support household purchasing power, and a strong labor market will boost job creation.

The Italian economy will grow at a rate of 0.2% in 2019 and 0.4% in 2020 as mediocre job creation may restrict consumption growth and slowing demand will weigh on investment, the report said.

The rating agency expects the European Central Bank to maintain its accommodative monetary policy until 2022, and predicts that it will cut its deposit rate by 10 basis points in March 2020 if macroeconomic data remains unfavorable.

Outside the eurozone, S&P Global Ratings raised its forecast for the U.K. and expects GDP growth to reach 1.3% in 2019 before slowing to 1.0% in 2020 and then rising to 1.7% in 2021. The rating agency said the ruling Conservative Party's parliamentary majority following the Dec. 12 election has cleared some Brexit-related uncertainty, though instability will continue to weigh on investment and growth.