Ernst & Young: Eurozone painfully progressing

By Rob Starr, Content Manager, Big4.com

A new Ernst&Young forecast predicts that Eurozone GDP will shrink by 0.2% in 2013 but there will be a modest pickup from 2014 to 2016 of 1.3% a year. Similar growth rates are expected for the remainder of the decade.  The North-South divide will remain for the foreseeable future with growth in some southern countries not predicted until 2015 at the earliest. This according to the winter Ernst & Young Eurozone Forecast (EEF).

In the near term, the peripheral economies are expected to continue undershooting official forecasts, leading to further overshoots in fiscal deficits and public debts in coming years. EEF forecasts continued recessions in 2013 in Greece, Portugal, Italy and Spain, with falling domestic demand, but positive GDP growth, in Ireland. Although the short-term outlook for the peripheral economies remains challenging, glimmers of medium-term hope have started to appear. There has been significant progress in restructuring of peripheral economies. In particular, countries like Ireland and Spain have achieved large increases in productivity. This has helped reverse negative competitiveness trends and has been reflected in strong exports growth. However, the adjustment in competitiveness is far from complete. In the short term these changes have led to a significant squeeze on households’ incomes, which in turn, deepen and prolong the domestic recessions in these countries