EY Eurozone Forecast: September 2013
Unemployment to reach an all-time high in the Eurozone
While there is good reason to expect the Eurozone economy to recover over the next couple of years, progress is likely to be very slow
After falling by an estimated 0.5% this year, we expect GDP to grow by about 1% in 2014 and then by some 1.5% a year in 2015–17. This would mean that it would take eight years for the economy to regain its pre-financial crisis peak level of GDP.
Given the importance of exports to the recovery, we expect manufacturing to enjoy a turnaround in fortunes, with output falling by 0.8% in 2013, but recovering to grow by 1.7% in 2014. We expect financial and business to see an improvement; with output falling modestly, this year before accelerating to grow by 1.3% in 2014 as business confidence strengthens.
The outlook is weaker for other sectors, particularly those exposed to the consumer and government sectors. We expect construction to perform very poorly this year. We forecast output to fall by 3% as the combination of a lack of finance for both public and private projects and the continuing legacy of a long period of oversupply in a number of housing markets.
Eurozone GDP is forecast to fall 0.5%in 2013 and unemployment will peak at around 20 million people in early 2014.
Further rises in unemployment will hurt consumers
Several factors will act as obstacles to a stronger recovery. One short-term factor is that unemployment will continue to rise, particularly in the periphery. Even though the Eurozone is now recovering, it will take some time for that recovery to be strong enough to create new jobs.
Source: Oxford Economics.
Initially, the recovery is likely to prove jobless. Unemployment will continue to constrain consumer confidence and purchasing power and reinforce demand for goods and services tailored for those on tight budgets.
We expect unemployment to rise from its current rate of just over 12% to peak at 12.6% in mid-2014. This will offset some of the benefits from lower inflation, limiting the boost to real household incomes and meaning that consumer spending grows by just under 0.5% in 2014 and 1.1% in 2015.