Eurozone : Fragile Growth in 2014

Written by | Thursday, January 2nd, 2014

The eurozone should finally resume a positive economic growth in the new year 2014. The latest official forecasts speak about a modest rate of about 1.2 percent as compared to the United States’ 2.7 percent or the world’s average about 4 percent. Left-wing members of the European Parliament immediately branded the anticipated close-to-zero growth rate as a proof of the toll that Brussels’ austerity measures have inflicted upon Europeans. The criticism came shortly after European Commissioner for economic and monetary affairs, Olli Rehn, announced the next year’s economic outlook.
Some economists are of the opinion that that the forecasts are far too optimistic saying that not only the growth rate might really approach zero but the Eurozone may also be under the threat of deflation. Lately, the inflation rate was far too low as compared to the official target of the European Central Bank (ECB) – in fact, the rate fell to 0.7 percent in November. Moreover, Mr. Rehn said that economic output for all 17 countries with the common currency was expected shrink by 0.4 percent throughout 2013, but would grow by 1.2 percent next year.
Critics furthermore add that even if the Eurozone manages to grow in 2014, its efforts to tackle banks and install austerity might boomerang. After beating back panic that the currency block was about to fall apart, 17 euro countries made a significant effort in 2012 and 2013 to tame their fiscal policies.
The new order seems to have put EU finances under tighter control, yet some policymakers fear that the introduction of the banking union in 2014 could achieve exactly the opposite as lenders must undergo a strict check-up while particular euro countries are left to tackle the cost of this procedure. Given the fact that the ECB will have to supervise all this, it is expected that tensions accompanying the implementation of the banking union can bring about more market volatility in 2014.

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