Eurozone to stay in recession for rest of year, says BofA ML

The eurozone will remain in recession for the rest of the year despite the relief provided by longer-term refinancing operations (LTRO), says Bank of America Merrill Lynch (BofA ML).

Higher oil prices and tax hikes will continue to contribute to the “sticky inflation” problem areas too, leading the bank to describe the near-term outlook as “grim”.

While the second LTRO initiative provides much needed liquidity to the region, the bank warns the effects will not be felt for months, and even then might not be enough to overcome the inherent fiscal problems.

BofA ML analysts report: “The impact of the LTROs on the real economy will likely remain unknown until the second or third quarter of this year.

“Overall, the LTROs should help support an economic recovery, but this does not change our view that the Euro area will remain in recession throughout this year.”

The European divide continues to worsen, meanwhile, as the larger economies gain strength while the peripheral nations are finding themselves being starved of credit, it adds. Austerity measures in weaker countries are starting to diminish the parallels between the peripheral’s and Germany’s GDP growth figures.

“All in all, a more robust Germany is still good news in the euro area – only not as good as we have come to expect,” according to the bank.