Europe will start 2012 in recession, predicts BofA

Bank of America (BofA) forecasts that Europe will slip into a recession this quarter, forcing unemployment rates higher.

The bank also indicates the recent weakening of the area’s industrial production is starting to contribute to a decline in inflation.

“Over the next year we expect the pace of inflation to slow considerably”, said the bank in its Global Economic Weekly.

Eurozone annual inflation has remained at 3% for the past three months, compared with 1.9% a year previously.

Three consecutive periods of economic contraction are predicted: 0.4% in this quarter, 0.6% in the first of 2012 and 0.3% in the second. Tentative signs of growth are expected to follow on from the third quarter.

The eurozone’s most effective means of recovery would be to follow the US example towards greater fiscal union, says BofA, after revising GDP growth expectations for the US in the fourth quarter up from 3% to 3.8%.

The European Central Bank opts to view interest rates only in light of inflation and non-conventional policy tools to deal with the debt crisis. The US Federal Reserve has no such ‘separation principle’, a method the bank deems more effective.

To receive more relevant articles like this one, why not sign up to our briefings and breaking alerts by clicking here.