Eurozone to see meagre growth in year ahead

THE EUROZONE economies will grow at a slower speed than previously expected in 2014, according to a forecast yesterday by the European Commission.

The euro area is now expected to grow by only 1.1 per cent in 2014, compared to the 1.2 per cent projected in the spring, despite the region’s emergence from a long recession earlier this year.

The revision puts further pressure on Mario Draghi, the president of the European Central Bank (ECB), to act in the face of the currency union’s feeble performance.

The Eurozone’s forecast for this year was left unchanged, with a 0.4 per cent contraction in GDP expected.

IHS Global Insight’s Howard Archer predicts that Draghi will be forced to cut the ECB’s benchmark interest rate from 0.5 per cent to 0.25 per cent before the end of the year:

Archer added: “It seems unlikely that an interest rate cut to 0.25 per cent would have a major impact in boosting Eurozone growth, it may at least help keep the euro at a more competitive level and limit market interest rates.”

After a protracted period of low inflation, the forecast also predicts that inflation for the year will come in at 1.5 per cent, rather than the 1.6 per cent previously predicted. The report also expects that there will be no improvement in the rate of unemployment next year, referring to changes in the labour market happening “at a snail’s pace”.

In a speech in Frankfurt yesterday, European Commission president Jose Manuel Barroso said that Germany had gained the most from the “virtuous circle triggered by the euro,” adding to a debate over Germany’s powerful position in the currency union.

Barroso added: “Germany could do more to enable also the others to bring in their respective assets, for example, through free and unhindered access to the service markets across Europe.”

Last week, the US Treasury Department released a report which criticised the country’s economic model, suggesting that it placed too much of the burden of adjustment on countries on the European periphery.