Eurozone rebalancing toward broad-based recovery

EY Eurozone Forecast & Outlook for financial services

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A prolonged period of solid growth

The Eurozone economy has experienced an eventful few years. But due to a confluence of temporary and structural factors, it now seems to be in the early stages of a prolonged period of above-trend growth.

And importantly, it also seems likely that the recovery will become broader-based in the years ahead.

The main driver of the Q1 performance was households’ willingness to spend their energy windfall. In the second half of 2015, households will start to feel energy bills rising in line with world oil prices, taking a little steam out of consumer spending.

Furthermore, we expect a gradual pickup in the pace of investment spending through the second half of the year.

After years of cost-cutting, companies need to overhaul their strategies. They need to look on a country-by-country basis at the recovery of consumer demand and the factors behind it.

And the nascent recovery in consumer spending is welcome news for governments, as sales tax receipts will rise too. And as consumer demand drives firms to hire more, employment tax revenues and national insurance receipts should be starting to rise while unemployment benefits fall. Together, these factors should help restore public finances.

There is still a long way to go until unemployment falls to more acceptable levels and risks to stability remain.

But at midway through 2015, prospects for the Eurozone economy seem brighter than for quite some time.

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