Europe will fail to recover from the 2008 financial crisis unless economic reforms boost investment and productivity, Bank of America Merrill Lynch warned Friday.

In a review of the impact of the economic downturn, the financial advisor said it has damaged European investments and the 17-nation bloc's potential to grow.

The trend growth for Europe's large countries - Germany, France, Italy and the UK - fell from 2.2% in 1995 to 2007 to 0.1% on average in 2008 to 2014.

"In the absence of a considerable boost to economic policy, but assuming a standard recovery, Europe's large countries trend growth would be lower at circa 1.3% in 2015-2020," Lynch said.

The group also said it believed the hierarchy of countries has changed since the crisis.

They estimate Germany's trend growth has declined from 1.6% in the run-up to the credit crunch to 1.1% in 2015 to 2020, versus 1.0% in 2008 to 2014.

Trend growth for France, Spain, Italy and UK was pegged at 1.4%, 1.8%, 0.7% and 1.9% respectively for 2015-2020, from 2.2%, 3.7%, 1.5% and 3.1% in 1995 to 2007.

However, the recovery is expected from deeper troughs in the 2008 to 2014 during the height of the crash.

The bank projects a steady recovery but lower growth for 2015 weighed against investment in physical and human capital and the ability to innovate and embed innovation into business.

Against the backdrop of a steep cyclical production loss, the organisation expects inflation to decelerate to end-2014.

"Should inflation decelerate faster it would likely raise concern at the ECB [European Central Bank] over its inflation target of slightly less than 2% and they would need to cut rates further and possibly experiment with more unconventional policies."

The analysis comes as Merrill Lynch's Laurence Boon Chief European economist criticised the pace of reforms in Spain.

Spanish Prime Minister Mariano Rajoy said his government will continue with fiscal and social reforms in the coming months as the country works to pull itself out of its economic slump.

"There is still a long way to go," he said at conference Tuesday.

The country has almost six million people out of work according to the latest estimates of the Inquest into the Active Population.

RD

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