Thursday 21 September 2017

Easing off on austerity will boost growth 1pc, EY predicts

The European Central Bank (ECB) headquarters in Frankfurt
The European Central Bank (ECB) headquarters in Frankfurt
Colm Kelpie

Colm Kelpie

CUTTING back on austerity across the Eurozone would boost growth by 1pc next year, consultants Ernst & Young (EY) has forecast.

In its summer outlook, the company said the recession across the 17-member bloc will last longer than previously thought.

It said that if the austerity measures currently planned were halved, Eurozone GDP would increase by 1pc next year.

Marie Diron, senior economic adviser to the EY Eurozone Forecast, said that in the short term there is little that can help growth across the countries that have the euro.

"The structural reforms that are being implemented, particularly across the periphery, could take some time to have an impact on GDP," she said.

"On the positive side, the relaxation of fiscal austerity means that measures that would have otherwise been implemented that could have potentially harmed growth have been avoided. But fiscal policy will remain restrictive."

SHRINKING

Ernst & Young said the European Central Bank (ECB) can do more by easing monetary policy targeted at SMEs.

It also said that the delay in the recovery in the Eurozone was partly due to the slowing down in emerging markets such as China and Brazil,

Key forecasts include:

* The Eurozone economy will remain in recession this year, shrinking by 0.6pc, a slightly larger decline than witnessed last year.

* Slow recovery next year, with growth of 0.9pc and about 1.5pc per year from 2015 to 2017.

* Unemployment will hit a peak of 12.7pc of the Eurozone workforce in the first three months of next year.

* Personal spending will contract again this year, slipping by 0.8pc before growing 0.5pc next year and just over 1pc in 2015.

The forecast also called for more to be done to encourage reforms for banks to fund lending to SMEs more cheaply.

"The risks of attempting further support are far less than not doing anything at all," said Ms Diron.

Irish Independent

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