RBS Economist: Europe to Fall into Recession This Year

Tuesday, 27 Sep 2011 07:55 AM

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The eurozone will slip into recession by the end of the year, says Silvio Peruzzo, euro-area economist at Royal Bank of Scotland Group.

"The eurozone will enter a recession by the fourth quarter of this year with contractions in growth for this quarter and the first quarter of next year, which in the current environment could be very damaging," Peruzzo tells CNBC.

The post-recession recovery, meanwhile, will be extremely modest.

The European Central Bank (ECB) will likely cut interest rates by 50 basis points later this year although the move won't steer the continent away from an economic downturn. (One basis point is equivalent to 0.01 percent, or one-hundredth of a percentage point.)

"The ECB has been forced into crisis management mode due to the rising risks of severe economic fallout from sovereign and banking crises and the risks to the growth outlook on the downside. This is now the most likely scenario," Peruzzo says.

Others are predicting skies to darken for industrial economies in the year to come, including Pimco, the world's largest bond fund, which sees Europe in recession and the U.S. stagnate.

"For the next 12 months, the global economy will slow materially with advanced economies struggling to grow much above zero," says Pimco CEO Mohamed El-Erian, according to Bloomberg.

Still, there are some optimists out there, especially if Greece is allowed to restructure its debts in an orderly fashion.

"With super easing of monetary policy, and assuming that a concrete plan is implemented for an orderly default of Greece, there could be a rebound," says Bob Parker, senior adviser to Credit Suisse, according to CNBC.com.

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