They said that weak manufacturing and services sectors, deteriorating job prospects, heightening financial market intentions, and elevated chances of a disorderly Greek default would contribute to a 0.2pc fall in gross domestic product in the final quarter of 2011, and a 0.4pc fall in the first quarter of 2012.
"We expect any recovery thereafter to remain extremely modest (0.1-0.2pc q/q), as the need for fiscal austerity weighs on growth," they wrote.
They said that while it would not be a "game changer", they expect the European Central Bank to cut interest rates by 0.5 percentage points no later than November.
"The ECB Council was already very dovish in September, in a context of particularly high uncertainty and risks to the growth outlook on the downside, suggesting in our view that they were not miles away from considering a cut in rates," they wrote.
"Since then, the key forward looking data has continued to weaken, financial markets have continued to fall, the euro area banking sector has come under increased pressure (despite the policy action already put in place) and inflation expectations continue to fall."
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