By Mark Whitehouse
If anyone needed further evidence that European leaders' approach to crisis management is killing the economy, the folks at Goldman Sachs offer this: They now expect the euro area to be in recession within six months.
In lowering their forecast for Europe, Goldman economists noted the detrimental effect of prolonged financial turmoil. With measures of European banks' borrowing costs looking worse than they did after the bankruptcy of Lehman Brothers in 2008, a credit crunch is all but inevitable. As a result, Goldman expects the euro area economy to shrink in both the fourth quarter of 2011 and the first quarter of 2012. That compares to an average growth forecast among economists surveyed by Bloomberg News of 1.2 percent and 0.7 percent, respectively.
The rapidly deteriorating outlook for Europe is bad news for the U.S., too. The Goldman economists expect U.S. growth to slow to the edge of recession -- an annualized rate of only 0.5 percent in the first quarter of 2012. And that's assuming the Federal Reserve implements stimulus measures beyond the recently announced move to increase the average maturity of its bond holdings.
The size of Europe's economy is, of course, the denominator in any proper measure of the region's sovereign debt burden. Hence, by focusing on futile austerity measures and by delaying credible measures to restore confidence, Europe's leaders are making their predicament demonstrably worse.
(Mark Whitehouse is a member of the Bloomberg View editorial board)-0- Oct/04/2011 14:44 GMT