ERNST & YOUNG SRL

  |  20.03.2014

Eurozone recovers, but at a slower pace than other major economies

The economy appears to be gaining momentum. But growth is still slow and the Eurozone will lag behind other major economies

Spring has been a long time coming in the Eurozone. After contraction in 2012, the economy shrank by a further 0.4% in 2013, despite the 18-month recession finally coming to an end in the middle of the year. But 2014 is set to see a return to growth. We expect GDP to expand 1% this year, before picking up to growth of about 1.5% a year in 2015–18.
Nevertheless, these growth figures are modest, reflecting a number of concerns.

 

Deflation is the first threat. The latest inflation data, showing consumer price inflation in the Eurozone at just 0.8% in February, indicates that the danger of deflation is now very real, especially given the low levels of money supply and credit expansion and a large negative output gap. While we do not currently expect deflation, a period of falling prices would mean that consumers might postpone spending in anticipation of even lower prices, and that debt cannot be eroded by inflation. This could lead to renewed concerns about the solvency of peripheral countries with very high debt burdens.

 

For complete information, please see the attached study.

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