RBS warns of new Eurozone recession

Royal Bank of Scotland economists have forecast the Eurozone will slip back into recession.

They said in a note they expect a contraction of 0.2 per cent in the final quarter of 2011, doubling to 0.4 per cent in the first quarter of 2012.

Fears of a Greek default are a factor in the gloomy outlook, while weak figures in the 17-nation block’s manufacturing and service sectors are a further reason for pessimism, RBS said.

“We expect any recovery thereafter to remain extremely modest,” the report said, “as the need for fiscal austerity weights on growth.”

They also predict the ECB will lower interest rates by 0.5 percentage points to deal with the worsening situation, which would represent a reversal of policy after July’s increase of 0.25 points.