Eurozone faces recession, says OP-Pohjola

Finnish bank OP-Pohjola says in its latest macroeconomic analysis that it believes a short recession will hit the eurozone.

 In turn, this will encourage the ECB to take a softer approach to inflation.

“Inflation in the euro area is waning, but in the next few years will remain slightly above the central bank’s targhet. The ECB’s monetary policy overall will continue to be mild to ensure stabiilty in financial markets. By the end of the year the key rate will be 0.75%-1%. The one-year Euribor will fall before the summer to about 1.5%,” said Reijo Heiskanen, chief economist.

Economic growth in Finland will be 1% over 2012. It will be at its weakest over the winter, when growth is predicted to be negative, but thereafter will benefit from a weaker euro and stronger exports. Investments in the economy are yet to pick up, however, and the forecast growth rate for 2013, while improved, will still remain relatively low at 2%.

Inflation in Finland will remain above 2%.

“The biggest risk still is the debt crisis. The situation is likely to be kept under control, but uncertainty is still possible, and we cannot rule out a worsening of the crisis,” Heiskanen added.

Key drivers globally are seen to be the US and China. The US is benefiting from broad-based recovery, with the central bank ready to support the economy with continued record low interest rates. China’s growth is likely to be relatively cool in the early part of 2012, but is expected to heat up later through the year.

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