The euro zone economy may have to wait until 2014 before it recovers from its decline this year, a Reuters poll suggested on Thursday, with few economists expecting anything other than feeble growth next year.
Only 17 of 71 economists polled said the euro zone economy will grow enough next year to cancel out the 0.5 percent decline predicted for 2012. The consensus was for 2013 growth of just 0.3 percent next year, in line with last month’s poll.
Overall, Thursday’s survey suggested recent aggressive action taken by the European Central Bank will not alone be
enough to put the euro zone back on a sound economic footing.
Despite this, most economists said the worst may now have passed for the euro zone economy.
While it almost certainly slipped back into recession last quarter, the poll suggested it will escape that fate in the current quarter – by stagnating rather than shrinking.
A return to growth hinges largely on Germany, Europe’s biggest economy. The likes of France and Italy, the euro zone’s second- and third-largest, look set for a tough 2013.
Germany, in a separate poll, was seen growing at 1.0 percent next year.
“It’ll be much of the same muddling on,» said Victoria Clarke, economist at Investec in London.
“Greece continues to linger as a threat and countries continue to knuckle down and push through their austerity plans.
With fiscal hands being effectively tied, there’s little there to throw a big boost for the economy.”
The biggest risk to the region, and arguably to the global economy, remains the sovereign debt crisis. Although the ECB has launched new measures to contain it, the possibility remains the crisis will flare up again next year.
The IMF on Thursday prodded Europe and the United States to act faster to resolve their debt troubles, blaming plodding
progress for creating economic uncertainty and slowing global growth.
“The ECB has expressed a willingness and commitment to fight the crisis. However, its actions have so far only mitigated its impact rather than solve it,» said Petr Zemcik, director economic research at Moody’s Analytics in London.
“A more fundamental approach is needed to put the crisis to rest.”
He cited measures including a massive controlled debt restructuring, the introduction of euro zone bonds, and a concentrated effort to tackle the economy’s structural problems.
“These steps are outside of the ECB’s jurisdiction. Unfortunately, at this point, a majority of them also seem politically unfeasible.”
The euro zone’s future as a 17-nation bloc is still under the spotlight, as Greece grapples with savage cuts needed to
fulfill the terms of its aid package from the European Union and International Monetary Fund.
Some believe Greece will have to leave the euro zone. «Further out, our forecasts are based on the assumption that
Greece leaves the euro zone around mid-2013,» said Howard Archer, chief UK and euro zone economist at IHS Global Insight.
“We expect a strong policy response to limit the fall-out but a modest euro zone recession is still expected as a
consequence in the second half of 2013.”
German Chancellor Angela Merkel visited Athens earlier this week, and reaffirmed her commitment to keep debt-crippled Greece inside the bloc. But she offered no promise of further aid, as tens of thousands of angry protesters filled the streets.
The pervading economic gloom means the European Central Bank looks likely to cut its main interest rate to a new record low of 0.5 percent. The question is how soon.
A slim majority of economists – 43 out of 80 – think the ECB will hold rates at 0.75 percent until the end of the year.
However, most expect it will cut interest rates by the end of the first quarter of 2013.
Euro zone unemployment looks likely to peak midway through next year at around 11.7 percent, compared with its record high 11.4 percent hit in August.
That left more than 18 million people in the euro zone unemployed. Across Europe, a record 22.7 percent of
18-to-25-year-olds are out of work.