Bloomberg News

BlackRock Says Euro Area Headed for ‘Full-Fledged’ Recession

December 16, 2011

Dec. 15 (Bloomberg) -- BlackRock Inc., 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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--Editors: Steven Crabill, Larry Edelman

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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