IES over the Eurozone debt crisis are holding back business investment in the UK, prompting the Ernst & Young Item Club to lower its growth forecast for this year and next.
Item expects growth of 1.4 per cent this year, sharply down from its April forecast of 1.8 per cent. The group’s forecast for 2012, meanwhile, is down 0.1 per cent, to 2.2 per cent.
“The risks to the world economy and the Eurozone are plain to see, starting with the Greek default which hangs like the sword of Damocles over Europe, threatening a domino effect on Portugal and Ireland, followed perhaps by Spain and Italy,” Item Club economist Peter Spencer said today.
“If there is a soft landing in China, the Greek crisis is resolved and nothing else goes wrong in the world economy, then world output growth should manage another four per cent this year,” Item expects. Yet it warned: “it’s a big if.”
Despite the threats to growth, it is too early to consider “Plan B” or more quantitative easing, Spencer states.
“Even if some of the risks were to materialise, the impact on exports would be balanced by the benefits of lower commodity prices,” Spencer said.
Investment is still on course to increase by eight per cent this year and 12 per cent next year, Item has calculated.