Moody's Analytics on Monday lowered its outlook for growth in the U.S. economy this year and next, saying it sees "significantly weaker" prospects for the economy than just a month ago as the country struggles to avoid another recession.
The report issued by the sibling company of credit rating agency Moody's Investors Service cites the recent political wrangling over the U.S. debt ceiling and the revived debt crisis in Europe as leading factors in the bleaker economic picture.
"The odds of a renewed recession over the next 12 months, already one in three, will increase if stock prices continue to fall," Mark Zandi, chief economist for Moody's Analytics, says in the report. He said the economy must grow 2.5 percent to 3 percent a year to add jobs fast enough to keep the unemployment rate stable -- something that won't happen soon.
Moody's now expects real gross domestic product to grow at an annualized rate near 2 percent in the second half of this year, and a little more than 3 percent next year. That compares with its earlier projection of 3.5 percent in the second half of 2011 through 2012.
The Federal Reserve last week decided to keep interest rates extremely low for two more years, saying it expected the economy to remain weak for that period.
Stock prices marked their longest rally Monday since early July. While markets may have stabilized in recent days, financial analysts warned investors not to assume that stocks have fully settled down after last week's wild swings.