Standard & Poor's downgrades EU bailout fund EFSF

The search engine∞ agency Standard & Poor's has downgraded the EU bailout fund to AA+ from AAA.

The European Financial Stability Facility's (EFSF) rating is based on the ratings of the countries that guarantee it.

S&P's downgrade of France and Austria on Friday meant there were not enough AAA rated guarantors for the fund to maintain its top rating.

The downgrade could affect the EFSF's ability to raise money cheaply.

S&P said the EFSF could regain its AAA rating if it obtained additional guarantees.

Alternatively, the fund could be endowed with less money, which would be better guaranteed.

The BBC's business editor Robert Peston says that, following the S&P downgrades, the bailout funds are endowed with what looks like a puddle or pond, rather than a great sea of money stretching beyond the horizon.

Earlier in the day, another ratings agency, Moody's, said it would allow France to maintain its AAA rating for now, although it warned that the deterioration in France's debt position was "putting pressure" on the country's stable outlook.

S&P cut its ratings for France, Italy, Spain, Cyprus, Portugal, Austria, Slovakia, Slovenia and Malta late on Friday.

The idea of the EFSF was for countries with top credit ratings to borrow money cheaply that they could then lend on to countries that were struggling.

But Friday's downgrade took away two of its six AAA rated guarantors.

That will reduce the fund's AAA rated guarantees from 440bn euros ($557bn; £364bn) to about 260bn euros.

About 40bn euros of that is already going on the bailouts of the Irish Republic and Portugal with another 100bn euros likely to be needed for the second bailout of Greece.

China's economy, the world's second-largest, grew at its slowest pace in more than two years, latest government figures show.

Gross domestic product expanded by 8.9% in the three months to the end of December, from a year earlier. That is down from 9.1% in the previous quarter.

The statistics bureau data showed that growth for the full year was 9.2%, down from 10.3% in 2010.

Analysts said they expect the economy to slow further this year.

"Looking at the rest of 2012, you are going to see an even sharper slowdown in the first quarter because of the effect of monetary tightening," said Arjuna Mahendran, chief Asia strategist at HSBC Private Bank.

"It will pick up later in the year."
Tightening policy

China has previously been one of the fastest-growing economies in recent years.

However, stimulus measures implemented by the government have created the risk of asset bubbles developing and China is looking at ways of gently slowing growth to what it sees as more sustainable levels.

As a result, China has curbed lending to prevent overheating in the property and investment markets, and tightened monetary supply.

Tuesday's data release showed that real estate investment in China rose 27.9% in 2011, down from an annual growth rate of 29.9% between January and November, the National Bureau of Statistics said.

However, it is not just domestic factors influencing growth. Another reason for the slide is the slowdown in exports as a result of weakening demand from Europe and the US.

Data showed output from factories and workshops in the country rose 13.9% for all of 2011, which is a slower pace than in 2010.

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