Slow growth to haunt Eurozone for next 2 years

Ben Southwood
Follow Ben
THE EUROZONE is set for years of stagnation and slow growth, according to Ernst & Young research published this morning.

Even the best case scenario is “mild recession in 2012, depicted by the Eurozone shrinking 0.6 per cent, with a weak recovery of 0.4 per cent in 2013,” according to the latest forecast from the accountancy firm.

By 2014, it expects Eurozone growth of 1.7 per cent, with two per cent growth in 2015 and 2016.

Its forecast is based on the assumption that Greece will proceed with austerity, while Spain and Italy will avoid further significant financial crises.

The forecast also warns that the high levels of youth unemployment in Spain and Greece could threaten the stability of their societies.

Consumer spending is predicted to stagnate or fall in much of the Eurozone in 2012, though France and Germany will achieve small increases of 0.2 per cent and 0.9 per cent, according to the report.

By 2013 consumer spending is expected to regain momentum in the core, but fall further in the periphery, only bottoming out by 2014, it predicts.

One way in which Ernst & Young thinks it may be possible to achieve real growth is through a trade strategy focused on emerging markets – though recent data suggests the possibility of a Chinese slowdown.

Marie Diron, senior economic adviser at Ernst & Young, predicts that “a failure to save Greece would undermine market confidence, lead to further capital flight from Spain, Italy and Portugal, and a collapse of the single currency, with devastating economic and social impacts.”

Mark Otty, Ernst & Young’s managing partner for Europe, contends that, “any kind of recovery is dependent on Eurozone political leaders seizing the initiative over the next few weeks – they cannot ‘kick the can down the road’.”

Meanwhile, Ernst & Young’s Thus Diron argues that “the time for debate is over - the EU needs action.”

He says that sustained stability will require a “deep and prolonged restructuring, curtailing the availability of credit for some time.”