The FINANCIAL — The forecast predicts a contraction of 0.5% in GDP this year followed by growth of 0.9% in 2014.
The FINANCIAL — The forecast predicts a contraction of 0.5% in GDP this year followed by growth of 0.9% in 2014. The Eurozone recovery will continue to be weak between 2015 and 2017 at 1.6% a year. However, despite the weak outlook for the region, joining the eurozone remains an attractive prospect for eastern European economies. Latvia will become the eurozone’s 18th member on 1 January 2014 and it is expected that Lithuania will follow suit in 2015, according to Ernst & Young Global Limited.
Comparing data from 1998 to 2007 and from 2008 to 2017 it is evident to see the long-term impact that the Eurozone crisis continues to have on the region. Annual GDP growth between 1998 and 2007 averaged 2.3% while between 2008 and 2017 it is expected to be at 0.4%.
The forecast shows eurozone GDP finally moving 3% above its pre-financial crisis peak by the end of 2017. In contrast, by that date, UK GDP is expected to be more than 8% higher and US activity is forecast to be 20% above its late-2007 level, according to Ernst & Young Global Limited.
The report also highlights stark differences in the number of unemployed which will average over 17m between 2008 and 2017 compared with just over 13m in the previous decade. Investment across the region is also expected to contract by 0.1% per annum in the decade from 2008 to 2017 down from an average of 3.3% growth annually in the previous decade.
The initial phase of the eurozone recovery was driven by net trade and EEF expects export growth to accelerate further, as global growth strengthens and boosts world trade. This is likely to be supplemented by domestic demand, which has been a sizeable drag on growth over recent years, but should improve from 2014. Austerity will also continue to weigh on growth but the drag will be considerably smaller than in previous years, according to Ernst & Young Global Limited.
Conditions for households are also likely to improve. Consumers have endured a prolonged period of falling real wages and rising unemployment which has squeezed spending power. However, with inflation dropping back and unemployment stabilizing, this squeeze will ease and EEF expects to see consumer spending grow by 0.5% in 2014, after falling by an estimated 0.6% in 2013.
In addition, the investment climate is showing signs of improvement. Surveys of business confidence report firmer sentiment on the back of an improving outlook – both at home and abroad – and a reduced level of downside risk.
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