Morgan Stanley cut growth forecasts for the Eurozone as it sees the region "stuck in a recession rut", but still feels the European Central Bank (ECB) needs more to embark on additional rate cuts, according to a note published Wednesday morning.

The analysts cut their forecast for 2013 GDP in the Eurozone to a -0.7% contraction, from the prior -0.5% estimate, and now believe that the euro area won't hit bottom until mid-year, with a "timid recovery" not arriving until the second half.

As part of their explanation, they noted several factors limiting the recovery such as the postponement of additional austerity until 2014 or the fact that the ECB has not followed through on their expectations of a reduction in interest rates or a follow through on the implementation of the OMT programme (purchases of sovereign debt).

The broker said that their largest forecast reductions are concentrated in Italy, France and the Netherlands and, "going against the grain, we are slightly raising our forecasts for Germany, Austria and Ireland".

As part of Morgan Stanley's "key message", these experts concluded that "a longer, deeper euro area recession will not be enough to push the ECB to cut rates again".

JM

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