Euro Zone Already in 'Serious Recession': BofA

The group of euro-member countries fell into "a serious recession in September" and economic contraction will continue through next year, pushing interest rates sharply lower, Bank of America said in a research note Tuesday.

"All major euro-zone members seem to be in recession now," analysts Gilles Moec and Holger Schmieding said in the note.

"Some countries were already fragile before the oil shock and entered a state of semi-recession very early in 2008 or even before."

Economies have taken four hits: the credit crunch finally hitting the continent, contraction in trading partners like the United States and United Kingdom, outflows of capital in emerging markets and postponement of investment plans, Bank of America said.

"The major force pulling the euro-zone economy from stagnation to downright recession is likely to be investment," BofA said.

It expects total investment to decline 2.2 percent in 2009, compared with a rise of 1.8 percent in 2008.

In response, the European Central Bank will likely cut rates again, with a half-point or possibly a three-quarters-point cut coming in December and rates falling as low as 2 percent by March 2009, BofA said.

The ECB's key lending rate currently stands at 3.75 percent.