Although the eurozone has probably come out of its
recession, its recovery will not be as robust as previously predicted,
according to a European Union executive, who cited slower growth and inflation as
probable drags in 2014, according to TeleTrade.
European Commission forecasts call for weak private demand
and extra-low inflation, below European Central Bank (ECB) targets, in 2014.
Many analysts believe this news will almost force the ECB to cut interest rates
in order to spur growth. Whether the ECB will do that as part of its Nov. 7 gathering
remains to be seen. Euro money market traders polled by Reuters did not expect
a change in the primary refinancing rate this week, saying that the ECB will
wait for more data before cutting rates to new record lows.
Even if growth is slower than anticipated in 2014 (now
estimated at 1.1%, down from the 1.2% predicted in May), it will still exceed
this years’ 0.4% contraction rate. Early estimates for 2015 indicate a growth
rate of 1.7%, according to the [broker]. Structural reforms and fiscal
consolidation are credited with the eurozone probably turning a corner from the
second quarter of 2013 onward, although it will not speed around that corner in
2014 as quickly as previously thought.
The spending discipline of many eurozone governments over
the past three years led to recession for two of those years, but it won back
investor confidence in the meantime, an important turnaround. As a result of
anticipated growth, the EU Commission predicted a shrinking of the region’s
budget deficit from 3.1% of GDP to 2.5% in 2014, and on continuing down to 2.4%
in 2015.
The Commission also predicted a peak of public debt to 95.9%
of GDP in 2014, with a fall to 95.4% in 2015. It currently stands at 95.5% of
GDP.
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