Bank of America forecasts a deep recession in Europe with the economy shrinking almost 8% this year

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Bank of America forecasts a deep recession in Europe with the economy shrinking almost 8% this year

European Central Bank (ECB) headquarters building is seen in Frankfurt, Germany, March 7, 2018. REUTERS/Ralph Orlowski

Reuters

European Central Bank (ECB) headquarters building is seen in Frankfurt

  • Bank of America sharply cut its 2020 growth forecast for Europe from 1% expansion to a 7.6% contraction.
  • More fiscal support is "urgently needed" to avoid bigger damage, the bank said in a note on Thursday.
  • The European economic chokehold, however, is expected to be temporary as BofA analysts anticipate GDP growth of 8.3% in 2021.
  • Visit Business Insider's homepage for more stories.

The European economy will shrink by 7.6% this year, Bank of America predicted on Thursday, warning that policymakers are not going far enough in stimulating growth.

Prior to the novel coronavirus outbreak, the banking titan expected growth of 1% this year for the 19-member eurozone.

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Analysts attributed the sharp cut to increasingly severe quarantine measures across Europe, even while the rate of new infections in Italy and other regions has slowed down.

Read more: Wall Street's disaster playbook never included work-from-home trading. Insiders explain how banks rapidly adjusted during one of the most chaotic markets in history.

Although the European Central Bank has launched stimulus packages in response to the growing risk of coronavirus, BofA says "more fiscal help will be needed to limit permanent damage to the corporate sector and jobs."

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Uncertainty about the duration of the quarantine period has impaired the construction and manufacturing sectors, both of which analysts presumed would be relatively unhurt.

Despite an anticipated ease in lockdown measures around May, analysts said the return to work would be a lot slower than previously estimated.

This anticipated recession has wider implications for the global economy. Among the eurozone's members, Italy is still one of the countries that never quite fully recovered from its sovereign debt crisis in 2010. Many of its banks are still fragile and loaded with government debt.

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Read more: 'We are in an unprecedented moment of global distress': Read the full memo billionaire Ken Griffin sent to Citadel employees on the coronavirus crisis

Flash readings for the eurozone - which include Italy and Spain - show manufacturing output declined from 48.7 to 39.5, an almost 11-year low. Services activity fell from 52.6 to 28.4, another record low.

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