Eurozone growth will not resume before 2014 – economic institutes

20 February 2013 17:41  [Source: ICIS news]

LONDON (ICIS)--Economic growth in the eurozone as a whole will not resume before 2014, a group of economic research institutes said in a joint forecast on Wednesday.

Even in 2014, there is only likely to be moderate growth of around 1.3%, as budget cuts and tax hikes weigh on prospects in the eurozone crisis countries, according to the European Forecasting Research Association for the Macro-Economy (Euroframe). The association includes 10 independent European economic research institutes.

While confidence in major eurozone economies should recover over the course of 2013, overall eurozone GDP would decline again this year by about 0.3%, Euroframe said, as weak external demand will not be enough to compensate for the fall in domestic demand.

Euroframe’s projections needed to be considered “in the light of the continuing vulnerability to financial shocks of a number of the euro area member states,” the institutes said.

“Recently released fourth-quarter GDP figures were weaker than expected in a number of euro area economies, including Germany, France and Italy, suggesting a continued vulnerability of the euro area economies,” they said.

While the vulnerability of eurozone crisis countries was being addressed through continuing major fiscal adjustments, these measures also had a substantial negative effect on growth, they added.

Without the fiscal adjustments, the eurozone would be looking at growth of about 1.5% in 2013 and 2.0% in 2014, they said.

In 2012, eurozone GDP could have grown by 1.3% if it had not been for fiscal tightening - instead of contracting by 0.5%, they said.

The institutes also said that energy-related raw material prices are expected to come under downward pressure over the near-term.

On the other hand, acute political problems in the Middle East, particularly in Iran, could lead to severe supply problems, thereby triggering a sharp price rise, they said.

The full report is available on Euroframe's website.

Paul Hodges studies key influences shaping the chemical industry in his Chemicals and the Economy Blog

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