EY Eurozone Forecast March 2014: The Eurozone’s recovery will gradually recover momentum in 2014

Eurozone

EY Eurozone Forecast
& Outlook for financial services

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Eurozone Forecast March 2014: The Eurozone’s recovery will gradually gather momentum in 2014

After the severe problems faced by the Eurozone in recent years, the outlook for 2014 appears more secure and some upside risks to our growth forecast are now emerging.

But the Eurozone will continue to lag behind other major economies. GDP growth is seen at just 1% this year and 1.4% in 2015. This growth will initially be led by exports, which, over time, will encourage investment.

While the US continues to lower monetary stimulus, monetary policy in the Eurozone could become even looser. This would increase the chances of a weaker euro, which may further enhance the outlook for exports.

Nevertheless, there is still worrying divergence among Eurozone member states, with some of the core countries, such as France, the Netherlands and Belgium, likely to experience very sluggish growth. In contrast, some of the peripheral countries that have implemented painful reforms in recent years, notably Spain, Ireland and Portugal, are benefiting as world trade picks up.

At the same time, unemployment remains worryingly high in many countries, with youth unemployment a particular concern. Spain and Greece have youth unemployment rates of over 50%, while Slovakia, Italy and Portugal have rates of above 30%. For the Eurozone, this presents major concerns in terms of social tensions, education, training and labor mobility. And there are substantial long-term costs: individuals who spend a significant period of their youth in unemployment tend to spend less time in employment and on average earn lower wages over the rest of their lives.