BlackRock Says Euro Area Headed for ‘Full-Fledged’ Recession Amid Cuts
European Central Bank President Mario Draghi
Michele Tantussi/Bloomberg
European Central Bank President Mario Draghi said today in a speech in Berlin that the euro area may not be able to escape a recession triggered by governments’ austerity measures.
European Central Bank President Mario Draghi said today in a speech in Berlin that the euro area may not be able to escape a recession triggered by governments’ austerity measures. Photographer: Michele Tantussi/Bloomberg
Dec. 15 (Bloomberg) -- James Shugg, a senior economist at Westpac Banking Corp., talks about the outlook for the European economy, the euro and European Central Bank policy. Shugg speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)
BlackRock Inc. (BLK), the world’s biggest asset manager, said European nations including France and Germany are headed for a recession as the prolonged debt crisis has prompted companies to cut spending and stop hiring.
“We now believe that we’re in for a full-fledged recession, including one in France and Germany, that could cut GDP by 1 percent to 2 percent,” according to a note published today by New York-based BlackRock’s investment institute. “Short-term austerity measures could worsen the recession, defeating their very purpose of closing budget gaps.”
European Central Bank President Mario Draghi said today in a speech in Berlin that the euro area may not be able to escape a recession triggered by governments’ austerity measures. The economy of the 17-nation monetary union will probably shrink in the current and next quarters, Ernst & Young LLP said in a report published in London today. The firm is forecasting growth of 0.1 percent in 2012.
European Union leaders agreed at a summit last week in Brussels to tighter control of tax and spending by governments that overstep the bloc’s deficit limit of 3 percent of gross domestic product. They pledged a faster start to a 500 billion- euro ($650 billion) rescue fund. On Dec. 8, the ECB established refinancing operations with a maturity of three years, allowed banks to use their own loans as collateral and cut the required reserves ratio to 1 percent from 2 percent.
The moves by the ECB “reduce the risk of a bank liquidity crisis that would spread around the world,” BlackRock wrote today. “Secondly, they enable national governments to push their banks harder to buy their government debt.”
BlackRock, which manages $3.35 trillion, has advised governments including those in Ireland and Greece since the start of the European sovereign-debt crisis in 2010.
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To contact the reporter on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net
To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net
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