SlideShare uma empresa Scribd logo
1 de 48
Baixar para ler offline
Eurozone
Ernst & Young Eurozone Forecast   Spring edition — March 2013
Welcome

Published in collaboration with
Welcome                News that the Eurozone economy shrank               And while increased business investment
                             to the first           by 0.6% in the final quarter of 2012 — the          and consumer spending will also play a
                             Ernst & Young          sharpest contraction since the beginning            significant role in the years to come, further
                             Eurozone Forecast      of 2009 and the first time the region               policy reforms will also drive growth — a
                             of 2013. The           failed to grow in any quarter during a              broader tax base, the ongoing restructuring
                             year began with        calendar year — reverberated across the             of the public sector and developments
                             the hope that
                                                    region. Even Germany, so long the engine            such as reduced bureaucracy and stronger
                             better times lay
                                                    of the European economy, has suffered,              competition laws will all come into play.
                             ahead, but has so
                                                    with its exports slumping by 2% in the
                             far been marked
                                                    fourth quarter of 2012, causing its overall         It is important, too, to recognize that
                             by news both
Mark Otty                                           economy to fall by 0.6%.                            globalization is still increasing the levels of
                             good and bad.
Area Managing Partner,                                                                                  cross-border trade and capital and labor
Europe, Middle East, India
                             Even after the         More recently, the political deadlock arising       integration. And despite the problems of
and Africa
                             difficulties of 2012   from the Italian elections has been an              recent years, developed markets continue
and the relief that a near-term Eurozone            unwelcome reminder of the fragility of              to be major drivers of world economic
breakup has been avoided, challenges                the Eurozone’s attempts to recover from             activity, a point highlighted by our recent
still remain. The outcome of February’s             the financial crisis. The apparent rejection        report, Globalization and new opportunities
EU summit, which agreed to limit the EU’s           of austerity measures by Italian voters,            for growth. With technology integral to our
spending in 2014-20 to €960b, 3% below              together with the prospect of another               increasingly digital and connected world,
the current seven-year budget, prompted             election within months, will do little to           the presence of advanced broadband,
reassurance that European leaders can put           build much-needed confidence and has                social and mobile technologies across
aside individual country concerns and come          already injected further uncertainty into the       the Eurozone offers a chance for agile
together to address ongoing challenges.             markets. Such issues help to explain why            businesses to leverage these capabilities
                                                    we now expect the Eurozone’s GDP to                 into a significant competitive advantage.
However, it would be disappointing if the           decline by 0.5% in 2013, the same as the
deal, which represents the first cut in the         fall in 2012.                                       Such opportunities are integral to unlocking
EU’s budget in its 56-year history, also                                                                the huge reserves of cash that many
serves to hamper future growth. Cuts in             However, our forecast also expects some             European companies have built up in
funds to develop cross-border infrastructure        pickup during the second half of the year,          recent years. Only time will tell whether
for example, would hit peripheral EU and            in turn paving the way for growth of just           this reluctance to invest will evaporate
Eurozone countries particularly hard.               over 1% in 2014. This will then be followed         in the face of better economic news, but
While balancing the books is clearly crucial,       by slow-paced expansion, which will hit an          with the shadow of the financial crisis
policy-makers must also seek to create              annual rate of 1.6% in 2017. A number               seemingly poised to begin its slow retreat,
a balance between austerity and the                 of different factors will underpin this slow        and concerns about an imminent breakup of
necessary investment to promote growth,             recovery. Improved competitiveness and              the Eurozone now fading, we can be hopeful
the pursuit of which has intensified since          strengthening demand from the US and                that this year will see a corner turned and a
the turn of the year.                               emerging markets will boost exports.                brighter Europe emerge on the horizon.




Contents                     2	                     9	                       10	                        18	                         38	
                             Slow growth,           Highlights               Downside                   Forecast for                Detailed tables
                             rapid change                                    risks greatly              Eurozone                    and charts
                                                                             diminished, but            countries
                                                                             recovery will
                                                                             be slow




                                                                                            Ernst & Young Eurozone Forecast Spring edition March 2013     1
Slow growth, rapid change

The Eurozone has avoided a breakup, the euro has
survived and investors are regaining confidence
in both. Yet improved faith in the region’s economic
outlook has been accompanied by an appreciating
currency as well as a surge in financial markets.
Business leaders must integrate the messages
from a fast-shifting economic environment into
their planning and position their firms to cope with
the challenges — and to grasp the opportunities —
of slow growth accompanied by rapid change.




The Eurozone economy remains in recession and we continue to believe         Spotting potential hazards
2013 will be a year of mild contraction. Across the 17-nation bloc as a
whole, we expect GDP will decline by 0.5% in 2013, similar to the fall in    But not all the signals are green. The EU’s budget cutting may also
2012. But our Spring 2013 forecast foresees a mid-year turning point,        erode confidence in Europe. Most of the new cuts come from a fund to
with a modest recovery in growth during the second half and then             build cross-border infrastructure that the European Commission (EC)
growth of about 1% in 2014. That will be followed by slow-paced              had argued would promote economic growth. The burden of cuts may
expansion in subsequent years, we believe, with growth finally edging        therefore fall most heavily upon peripheral EU and Eurozone countries
up to 1.6% in 2017.                                                          with the poorest infrastructure — sending the wrong signals to business.

Grasping the good news                                                       Business leaders keen for reassurance that Europe is determined to
                                                                             overcome its difficulties may also be discouraged by hesitant progress
Both the policy backdrop and the economic environment continue to            on the EU’s commitment to banking union. Proposals that the ECB
evolve rapidly. Three key positives stand out. First is that a near-term     assume regulatory control of the biggest banks appear secure. But
Eurozone breakup has been avoided. That is confirmed both by the             there are perceptions that European leaders are retreating from
gauge of systemic risk compiled by the European Central Bank (ECB)           proposals for a single resolution authority and for common guarantees
and by the more optimistic assessment of financial markets, which            for deposits. Concerns were highlighted by a report from the
we share.                                                                    International Monetary Fund (IMF), published on 13 February,
                                                                             which emphasized the need for a common resolution system and
Second is the significant policy progress achieved represented by the        depositor safety nets if the Eurozone is to create a credible single
European Union (EU) budget. In early February, EU leaders agreed to          supervisory mechanism.
cap spending in the seven years from 2014–20 at €960b, 3% below the
current seven-year budget. Though perceptions of the compromise deal         A third negative for business and investor sentiment may be the
vary, the agreement has bolstered confidence in the ability of EU            controversial proposals, also unveiled in mid-February, for a financial
leaders to confront and resolve difficult issues.                            transaction tax. The proposed levy of 0.1% on share and bond trades
                                                                             and 0.01% on derivative transactions involving a financial institution
A third reason for enhanced optimism about the outlook is the                headquartered in the tax area, or for a client located within the 11 EU
announcement that the US and EU will open negotiations for a bilateral       countries that have expressed interest in “enhanced cooperation”
trade deal, which President Obama made during his February state of          in this field, would in practice apply far beyond the core Eurozone
the union address. The proposed “transatlantic trade and investment          countries seeking its implementation. It is therefore likely to trigger
partnership” seems a sincere attempt by developed economies to               stiff resistance from the US, the UK and other nations with leading
counter the shift of economic gravity towards rapid-growth markets           financial centers.
(RGMs) by reinvigorating their own economies.

In their joint statement announcing the talks, set to open by the end of
June, the US and EU estimated that a deal could add €86b of annual
income to the EU economy by 2027, equal to 0.5% of GDP for the
27 member states. Though there are many impediments to agreement,
especially over non-tariff barriers, with potential gains for the US equal
to 0.4% of its GDP, there are strong incentives on both sides of the
Atlantic that will drive the search for a deal.




2     Ernst & Young Eurozone Forecast Spring edition March 2013
Focusing on the present                                                     Since Germany generates 30% of Eurozone GDP, a better outlook there
                                                                            is clearly beneficial for its suppliers elsewhere in the Eurozone. But the
The decline in Eurozone GDP in the final quarter of 2012 was widely         equanimity of German bosses in the face of recession and their optimism
seen as disappointing, though broadly in line with our expectations.        despite the strength of the euro continue to offer lessons for companies
Overall, the economy of the 17-nation zone shrank by 0.6%, with a           throughout the region.
marked contraction in some core countries that had previously
delivered a relatively robust performance. GDP in Germany fell 0.6% on      Companies need to retain flexibility in their development planning and
the quarter, while in France it was down 0.3% and the Netherlands saw       to model multiple scenarios. But those with sound balance sheets
contraction of 0.2%. Key peripheral economies were even weaker, with        should now be seeking business opportunities, reviving investment
Italy shrinking 0.9% and Spain showing contraction of 0.7%.                 options and starting to hire to underpin business development. The
                                                                            second lesson from Germany is that in capital goods at least, quality
Following financial markets                                                 often continues to find customers, and even command a premium,
                                                                            when competition is intense. Selling on price alone is best avoided.
In the meantime, financial markets have surged, apparently anticipating
recovery despite the scarcity of green shoots in the seared European        Seeking out finance
business landscape.
                                                                            Companies seeking to borrow continue to face banks with reduced
The market recovery appears to have been driven by an element of            appetite to lend because of their own problems. As things start to
pent-up demand among investors, combined with a partial solution to         improve, the banks will be more able to deal with some of their
the problem of the US “fiscal cliff,” and a belief that European leaders    non-performing and non-core assets. Over time, this will make them
are “making the right noises.” Some market indexes have breached            better placed to lend to the sectors where they have confidence.
peaks seen in 2007, before the onset of the financial crisis.
                                                                            Banks are now thought to be around two-thirds of the way through the
A general belief that we are on the very slow road to recovery has          deleveraging process. Their focus is still on selectively shrinking their
increased the willingness of investors to put money into equities, rather   balance sheets. Our survey, the European Banking Barometer,
than low-yielding government bonds, or even the bonds of blue-chip          published at the end of 2012, showed that companies in construction
companies. Risk appetite has revived. Markets appear to be playing          or commercial real estate, which were hit hard by the financial crisis,
their long-standing role as leading indicators for the rest of the          generally find it more difficult to obtain loans than those in sectors
economy, but individual businesses and consumers, particularly              viewed more favorably by lenders, such as biotech, health care or
in southern Eurozone countries, are not yet sharing this                    information technology. These are seen as growth sectors offering
newfound optimism.                                                          a better chance of repayment. Overall, sentiment around lending
                                                                            conditions has improved, but the sovereign debt crisis has had a
Rebuilding business confidence                                              profound impact on lending within the Eurozone. After falls in 2012
                                                                            and 2013, EY expects a 2014 recovery in lending to the levels of 2011,
Yet confidence does seem to be returning, though at different levels in     rising further thereafter.
different places. The EC’s economic sentiment indicator rose for the
fourth successive month in February. Managers are getting more bullish      With bank lending constrained, 2012 saw an upsurge in European
about the outlook for business activity, with industry confidence and       capital market borrowing by well-regarded companies. But smaller
sentiment in services both increasing. Though confidence in Italy,          companies, and those perceived as more risky, will probably continue
France, Spain and Portugal remained below average, the strongest            to struggle to access capital markets.
improvement was in Germany, Denmark and Belgium.




                                                                                          Ernst & Young Eurozone Forecast Spring edition March 2013   3
Resurging interest in M&A                                                  eases upward pressure on the price of imported inputs, but exporters
                                                                           will find their competitiveness in markets beyond the Eurozone eroded,
There are signs of an increase in mergers and acquisitions (M&A)           and their margins may come under pressure. However, we believe
activity in recent weeks. Though some of the most striking deals tabled    the euro is now overvalued by about 10%, and expect it to depreciate
have been in the US or UK, private equity activity also appears to be      towards US$1.25 by the end of the year. Corporate leaders need
picking up in the Eurozone. Some of this activity centers upon             to shift the focus of their currency concerns from risks to the single
restructuring or rolling over debt, rather than seeking out business       currency to the risks around changes to the relative values of
synergies. Generally speaking, companies see the recovery of financial     leading currencies.
markets as a cue to sell, but higher prices make buying businesses less
attractive. Business leaders are once again thinking about strategic       Companies should urgently review the potential impact upon their
steps, as well as organic growth opportunities. But only if the recovery   supply chains and upon their competitiveness both within the Eurozone
in market sentiment is sustained, and accompanied by a recovery in         and in their external markets. Currency shifts could augment pressure
corporate profit margins, is the market upturn likely to provide a more    on profit margins — or provide relief from rising input prices, depending
confident backdrop for companies to push through M&A deals.                upon location of manufacturing and markets. Caution will be required
                                                                           when negotiating contracts, and hedging will be necessary when the
Some industry consolidation is expected to occur within the financial      size of any deals that involve the euro and other leading international
sector itself. According to our December 2012 European Banking             currencies is material in relation to company revenues or funds.
Barometer, banks in over-banked markets such as Germany expect
considerable consolidation over the next one to three years. As            Global leaders appear increasingly concerned about the threat of
regulation intensifies, smaller banks that lack a clear niche will find    competitive devaluations. A February statement from the G20 pledged,
it increasingly difficult to achieve sustainable returns.                  “We will not target our exchange rates for competitive purposes.”
                                                                           Meanwhile leaders of the G7 richest-nations club insisted that
Trusting the euro                                                          they remained committed to “market-determined” exchange rates.
                                                                           Yet their statements appear to have had only limited effects upon
Yields on Spanish and Italian bonds fell last summer after remarks by      currency markets.
Mario Draghi, President of the ECB, that it would do “whatever it takes”
to defend the euro. Allegations of corruption in Spain and political       Companies that report in euros, but which generate extensive revenues
uncertainty arising from the February election in Italy contributed to     or profits outside the Eurozone, may find their figures undermined
modest yield increases in the early weeks of 2013. But by the middle of    by changes in currency valuations. Those reporting in US dollars or
February, 10-year Spanish bonds were still offering yields of around       sterling, on the other hand, may be able to show currency gains if
5.3% and their Italian counterparts yields of 4.4% — both around 200       recent rates are sustained.
basis points below their levels of last summer.
                                                                           Responding to improving export markets
Adapting to changing currency risks
                                                                           Yet the drag of currency appreciation comes against the backdrop of
Improved investor enthusiasm for the Eurozone has prompted a rise in       improving demand in many markets beyond the Eurozone. The
the euro, which has appreciated by 8% against the US dollar and by         Ernst & Young Rapid-Growth Markets Forecast: Winter 2013 noted an
8.5% on a trade-weighted basis since mid-2012. A stronger euro has         uptick in global growth, led by economies in Asia and Latin America. It
mixed consequences for Eurozone companies. Imports from outside the        predicted that RGM growth overall will accelerate from 4.6% in 2012 to
Eurozone become cheaper and therefore more cost-competitive with           5.3% this year and 6.4% in 2014. The first engine of global growth in
goods produced within the single currency area. A stronger euro also       the next few years will be Asian RGMs, whose expansion is expected to




4     Ernst & Young Eurozone Forecast Spring edition March 2013
Slow growth, rapid change




accelerate from 6.1% in 2012 to 7.8% in 2014. Simultaneously, growth        Yet external competition for companies’ investment funds is
in leading Latin American RGMs will rise from 2.6% in 2012 to 4.8% in       intensifying. Leaders of international companies will be obliged
2014. Economic growth is also now expected to accelerate in the US          to make tough choices when allocating scarce funds. As RGMs mature,
following action to resolve the problem of the “fiscal cliff.”              they grow larger; for businesses in some sectors their growth rates,
                                                                            now accelerating again, compare favorably with those of the Eurozone.
Against this backdrop, businesses within the Eurozone are pursuing          A stronger euro, and currency instability, can only reinforce the appeal
export markets energetically. After a 3% rise in exports in 2012, we        of developing capacity within regions and reducing reliance on
expect exports to expand by 2.5% this year — despite a stronger euro —      interregional supply chains.
and by 4% in 2014.
                                                                            Spotting new investment opportunities
Companies in peripheral countries undergoing substantial structural
reform are likely to be among those showing the strongest export            Business location decisions are built upon diverse factors. Stability,
growth. We expect Greek merchandise exports to expand by over 9% in         culture, and the availability of talent and skills can combine to create
2014, with Ireland, traditionally a strong exporter, and Spain achieving    an attractive export base even where local demand is inadequate
export growth of about 4.5% and 4% respectively.                            to sustain all of a firm’s capacity. A strong performance on all these
                                                                            criteria helps to ensure that Germany remains an attractive location
Coping with weak Eurozone demand                                            for many manufacturers.

Overall demand within the Eurozone is likely to remain weak, however,       Yet in recent months, structural reforms have awakened interest
reinforcing our expectation of a “lost decade” of very limited growth for   in some peripheral Eurozone countries. Companies contemplating
many companies operating within the region. We expect that fiscal           investments within the Eurozone may now need to look more widely
tightening will amount to 1% of GDP this year, paring one percentage        in their location decisions. They need to monitor recent and proposed
point from Eurozone growth. Constraints on public spending in               changes in business legislation in countries undergoing structural
Eurozone peripheral countries, in particular, will hamper companies         reform, to ensure they integrate improvements in attractiveness into
serving markets such as health care, education, and local authorities.      their decision-making process.

Tax increases and improvements in the efficiency of tax collection, in      But cost factors are also changing substantially in some countries
the meantime, will continue to impair the ability or confidence of          where competitiveness was previously penalized by high wages and
consumers to spend in some countries. This will be compounded by a          poor productivity. Since 2008, hourly wages have fallen by 14%
continuing rise in unemployment.                                            in Greece and by 5% in Spain and Ireland. Though productivity has
                                                                            stagnated in Greece overall, it has risen in Ireland and Spain. Overall,
Weighing where to invest                                                    falls in relative unit labor costs have improved the competitiveness
                                                                            of these three economies since 2008.
As business leaders and consumers gradually regain their confidence in
the growth outlook for the Eurozone, business investment will               The Eurozone remains central to business decisions
accelerate. The pickup will be bolstered by technology renewal as
companies adopt more efficient ways of conducting business. We              A market of 330 million relatively rich and sophisticated consumers,
believe Eurozone business investment will continue to fall in 2013,         underpinned by high levels of public spending, is an alluring prospect
shrinking by 2%, but will recover to grow on average by 3.5% a year         for business. Little wonder that investors from around the world
in 2014–17.                                                                 continue to be attracted to the Eurozone even as the global centre
                                                                            of economic gravity slides eastward.




                                                                                          Ernst & Young Eurozone Forecast Spring edition March 2013    5
Six months ago, amid intense fears of a Greek exit, the whereabouts of
future Eurozone borders were the biggest uncertainty confronted by
companies operating across the region. Today, however, the outline
looks more predictable, but the landscape itself is changing.
Unemployment, austerity, structural reforms and technological
development combine to create a business operating environment
characterized by the most rapid pace of change seen across the
17-nation bloc since the common currency became legal tender
11 years ago in January 2002.

The euro’s collapse was feared only months ago; the currency now
threatens to throttle exporters as it strengthens. That is a powerful
reminder that the Eurozone is a substantial but also vulnerable region
of an increasingly integrated world in which economic fortunes are
beyond the capacity of any single state to control.

To thrive, business needs to scan for risk both within and beyond the
Eurozone’s borders, constantly re-evaluating dangers and opportunities.
Yet ultimately, no-one investing in a factory with a lifespan of 20 years
or more can be sure of the returns that will accrue. Business remains an
act of faith, in the Eurozone as elsewhere.




6     Ernst & Young Eurozone Forecast Spring edition March 2013
Slow growth, rapid change




Ernst & Young Eurozone Forecast Spring edition March 2013   7
8   Ernst & Young Eurozone Forecast Spring edition March 2013
Highlights


A stabilizing economy                          A slow return of confidence                         Policy reforms encouraged by a more
                                                                                                   normal risk environment


•	The risk of an imminent Eurozone             •	Over the last six months there has been           •	 Public sector reforms are under way.
  breakup, which weighed heavily on              a marked decline in risk premia priced               In the peripheral countries particularly,
  business and consumer confidence for           into Eurozone financial markets.                     a range of measures have been
  much of 2012, has been averted.                We think that markets have risen                     proposed and implemented.
                                                 too strongly, given that economic
•	The economy is expected to start               fundamentals remain unsound and                   •	This restructuring has involved
  growing again from mid-2013, but               that some countries are facing                       broadening tax bases, increasing
  overall a decline of 0.5% is now forecast      political uncertainty.                               tax rates, improving tax collection,
  for 2013, followed by very sluggish                                                                 reducing public sector wage bills, and
  growth of only 1.4% a year in 2014–17.       •	The euro has already surrendered some                lowering the scale and duration of
                                                 of its earlier gains, but it is still up by 8%       welfare payments.
•	 Improving competitiveness and                 against the US dollar and 8.5% on a
  strengthening demand from the US and           trade-weighted basis since mid-2012.              •	The peripheral economies have
  emerging markets will start to boost           We expect it to fall later this year as              strengthened competition laws. This
  Eurozone exports over the coming year.         investors focus on underlying growth                 has reduced bureaucracy and made
                                                 prospects in the US and emerging                     it easier to start businesses and to hire
                                                 markets rather than the Eurozone.                    and fire staff. Other reforms will also
•	The return to very modest growth that
  we expect to see in the peripheral                                                                  enhance the performance of these
  countries in 2014 will initially be driven   •	Although the economic climate remains                struggling countries.
  by business investment and exports and         difficult, confidence among businesses
  subsequently, once the labor market            and consumers should return gradually,
  starts to improve, by consumer spending.       as some of last year’s major threats
                                                 recede. But we still expect business
                                                 investment to shrink by 2% in 2013,
•	Some threats remain. Political concerns
                                                 before recovering slowly to post average
  in Italy, Spain and some smaller
                                                 growth of 3.5% a year in 2014–17.
  Eurozone countries could start to
  undermine confidence again. This could
  lead to renewed market volatility and        •	 Weighed down by austerity measures,
  may heighten fears of “austerity fatigue”      consumer spending is expected to fall
  in some of the peripheral countries.           again in 2013, by 0.7%, before starting
                                                 to grow slowly by an average of just over
                                                 1% a year in 2014–17.
•	Our forecast assumes that Italy does
  not backtrack on the economic reforms
  implemented by the last Government.          •	 In addition, we estimate that fiscal
  Were the reform process to be                  tightening will amount to more than
  discontinued, we believe this would            1% of GDP again this year. This will cut
  have negative implications for the             around one percentage point from
  Italian economy and the bond and               GDP growth.
  equity markets. It also seems likely
  that it would lead investors to question
  the commitment of other peripheral
  economies to reform, most
  notably Spain.




                                                                                       Ernst & Young Eurozone Forecast Spring edition March 2013   9
Downside risks greatly
diminished, but recovery
will be slow




10
10   Ernst & Young Eurozone Forecast Spring edition March 2013
                                     Summer edition June 2011
Investors regain cautious optimism …                                                       Figure 1
                                                                                           Systemic stress indicator
The risk of an imminent Eurozone breakup has been averted and we                                 %
                                                                                           0.9
expect the economy to start growing again from mid-2013, albeit only
slowly. Reflecting this reduced threat, the ECB’s gauge of systemic risk                   0.8
has fallen sharply since July and is now back to levels last seen in
                                                                                           0.7
2007 — prior to the financial crisis. This is a clear signal that the
Eurozone financial system now represents much less of a threat to its                      0.6

economy. We share the confidence of the financial markets. We think
                                                                                           0.5
that the Eurozone is much more stable now than during most of 2012.
                                                                                           0.4

This improved risk environment should allow businesses that have been                      0.3
hoarding cash to consider investing and hiring again. However, so far
                                                                                           0.2
the improvement in confidence in the real economy has been less
pronounced than the gains in financial markets. According to the recent                    0.1
EC surveys, Eurozone business confidence has only risen a little and
                                                                                           0.0
consumer confidence has merely stabilized. The disparity between                                 1999           2001      2003      2005         2007   2009     2011
financial markets and the real economy will probably continue for some
time.                                                                                      Source: ECB, Haver Analytics




Table 1
Forecast of the Eurozone economy (annual percentage changes unless specified)                                         Source: Oxford Economics
                                                     2012           2013           2014                 2015             2016          2017

GDP                                                    -0.5           -0.5           1.1                  1.4              1.5             1.6
      Private consumption                              -1.3           -0.7           0.7                  1.1              1.3             1.4
      Fixed investment                                 -4.0           -2.0           2.1                  2.9              2.8             2.5
      Stockbuilding (% of GDP)                          0.0           -0.1           0.0                  0.0              0.1             0.0
      Government consumption                           -0.1           -0.7          -0.3                  0.3              0.6             0.8
      Exports of goods and services                     2.7           1.9            4.0                  4.4              4.1             3.9
      Imports of goods and services                    -0.7           0.7            3.7                  4.5              4.3             3.9
Consumer prices                                         2.5           1.8            1.6                  1.4              1.4             1.5
Unemployment rate (level)                             11.4           12.2           12.2                 11.8             11.4         10.9
Current account balance (% of GDP)                      1.2           1.6            1.5                  1.4              1.4             1.4
Government budget (% of GDP)                           -3.3           -2.5          -1.9                 -1.5             -1.2          -0.9
Government debt (% of GDP)                            92.7           95.3           96.2                 96.8             96.8         96.2
ECB main refinancing rate (%)                           0.9           0.8            0.8                  0.8              0.8             0.9
Euro effective exchange rate (1995 = 100)*           115.5          118.7         114.3                 110.7           110.3         110.1
Exchange rate ($ per € )                              1.28           1.27           1.21                 1.17             1.17         1.17

* A rise in the effective exchange rate index corresponds to an appreciation of the euro




                                                                                                                  Ernst  Young Eurozone Forecast Spring edition March 2013   11
The Eurozone still faces challenges that may partially undermine            Figure 3
confidence again. The inconclusive elections in Italy, and political        GDP growth
developments in Spain and some smaller Eurozone countries are                      % year
                                                                            3.0
sources of uncertainty.                                                                            Forecast

                                                                            2.5                                 1998–2007 average
Figure 2
Business and consumer confidences                                           2.0

      2005=100
                                                                            1.5
120

                                                                            1.0
110
                                                                            0.5

100                                                                         0.0


                                                                            -0.5
 90

                                                                            -1.0
 80                                                                                2010     2012         2014   2016        2018    2020     2022

                                                                            Source: Oxford Economics
 70



 60
                                                                            … due to public and private sector deleveraging …
      2000       2002     2004      2006      2008       2010        2012

Source: Haver Analytics
                                                                            Fiscal tightening is expected to be a medium-term drag on growth. We
                                                                            estimate that fiscal tightening will amount to more than 1% of GDP
                                                                            again this year, which will cut around one percentage point off GDP
… but we still expect a “lost decade” …                                     growth. From 2014 onwards, the pace of fiscal tightening should
                                                                            lessen, but at around 0.5%–1% of GDP a year, it will continue to dampen
For some time we have been forecasting a “lost decade” of growth for        growth. But, after several years of austerity, one of the key challenges
the Eurozone. Many other forecasters have now come to the same              now facing policy-makers in the Eurozone — both in the peripheral
conclusion and our expectations remain broadly the same. It is likely       countries and most others — is to apply public sector reforms in a way
that 2013 will be a second consecutive year of mild contraction, with       that does not continue to undermine growth (see Box 1 on the public
GDP now forecast to fall by 0.5%. And we expect growth to average only      sector perspective on page 16).
1.4% a year in 2014–17, almost a full percentage point below the 2.3%
average in the 10 years preceding the global financial crisis.              Banking sector deleveraging will also continue to constrain growth over
Consequently, unemployment will be slow to fall, with the number of         the forecast horizon. Although the banking system is now much less
employed in 2017 still 3% (or 4.65 million people) below its 2008           of a systemic threat to the broader economy than a year ago, it is
peak. The slow growth environment will increasingly force businesses to     not yet in a position to drive an economic upswing through rapid
look beyond their home markets in search of opportunities in the            lending growth. In the ECB’s latest bank lending survey, conducted
rapidly growing economies of Asia and Latin America, as well as to the      in January 2013, banks showed that they were not ready to ease
recovering US economy (see Box 2 on the international environment           credit standards yet. Generally, tight credit conditions will weigh on
on page 17).                                                                investment and consumer spending.




12       Ernst  Young Eurozone Forecast Spring edition March 2013
Downside risks greatly diminished, but recovery will be slow




Figure 4                                                                        … and high unemployment
Lending growth to non-financial companies
      % year                                                                    A further rise in unemployment in the short term, and only a slow
20                                                       Forecast               decline from 2014, is likely to be another impediment to growth.
                                                                                Unemployment in the Eurozone overall reached a record high of 11.7%
15                                                                              in December 2012, with the jobless rates in Spain and Greece at more
                                                                                than 26%. With productivity barely back to pre-crisis levels, companies
                                                                                and governments are still trying to adjust staff levels to enhance
10                                                                              efficiency and restore profitability. By the end of 2017, we expect the
                                                                                unemployment rate to still be just above 11%, and the number of
                                                                                unemployed to be around 6.5 million higher than at the start of the
 5
                                                                                financial crisis.

 0                                                                              Signs that reforms in the periphery are bearing fruit

                                                                                The contrast between low growth in the core Eurozone nations and
-5
     2000      2002   2004   2006   2008   2010   2012     2014      2016
                                                                                ongoing recession in the peripheral countries will remain stark this year.
                                                                                Nevertheless, there are some tentative signs that the situation beyond
Source: Oxford Economics                                                        the core nations is improving. We expect the pace of contraction in the
                                                                                periphery to slow from 1.9% in 2012 to 1.4% in 2013, before a return
                                                                                to growth in early 2014.
Lending to non-financial companies is expected to expand by just 1.2%
on average over the next five years, far below the 6.8% annual average
                                                                                Figure 6
of the five years preceding the 2008–09 global financial crisis. Weak
credit growth will mean that companies wishing to invest will have to
                                                                                GDP
                                                                                      2008 Q1 = 100, constant prices
rely more on internally generated funds and raising capital via financial       110                                                  Forecast
markets than they did prior to 2008. The recent falls in the risk premia
embedded in equity and bond markets should make it easier and
                                                                                105
cheaper for companies to raise external finance from markets, thereby
partly offsetting tight financing from banks. We expect business                                       Other Eurozone countries
                                                                                100
investment to shrink by a further 2% in 2013, before growing by an
average of 3.5% a year in 2014–17.
                                                                                 95

Figure 5
                                                                                                                                                  Greece, Ireland, Italy,
Investment, private sector business                                              90                                                               Portugal and Spain
      %
10                                                        Forecast               85

 7

 4                                                                               80
                                                                                      2008   2009      2010     2011    2012      2013   2014   2015    2016      2017
 1
                                                                                Source: Oxford Economics
 -2

 -5
                                                                                Indeed, in parts of the periphery, painful work being undertaken to
 -8
                                                                                reform economies is already yielding results in the form of improving
-11                                                                             international competitiveness.
-14
                                                                                Since the onset of the global financial crisis in 2008, employment in the
-17
                                                                                periphery has fallen by 9%, or 5 million people. In the case of Spain,
-20                                                                             Ireland and Portugal, employment has fallen further than output,
     2000      2002   2004   2006   2008   2010   2012      2014     2016
                                                                                thereby providing a boost to productivity. Since 2008, output per
Source: Oxford Economics                                                        worker has increased by 2.4% in Spain, 1.7% in Ireland and 1% in
                                                                                Portugal. But in the case of Italy and Greece, productivity has actually
                                                                                fallen since 2008 — both by about 1%. In Greece this has occurred
                                                                                despite a steep fall in employment, but in Italy it reflects a decline in




                                                                                                    Ernst  Young Eurozone Forecast Spring edition March 2013               13
employment of just 1.9% over a period when output has fallen by 5.3%.                              By 2014, we expect the peripheral Eurozone countries with the fastest
Employment laws have made it difficult for Italian companies to adjust                             export growth to be Greece, Ireland and Spain — at 4.3%, 4.4% and 4.2%
the size of their workforces as output has fallen. However, Italy has                              respectively. These are the three countries that have seen the largest
introduced legislation that will make it easier for companies to make                              improvement in their relative unit labor costs, and hence
workers redundant when needed.                                                                     competitiveness, since 2008. This will help these countries exit
                                                                                                   recession and allow gains in economic activity to accompany
Figure 7                                                                                           job creation.
Productivity growth
       Spain                                                                                       Appreciation of the euro could curb Eurozone growth …
     Slovakia

      Ireland                                                                                      One downside of the improvement in investor confidence has been the
     Portugal
                                                                                                   appreciation of the euro, up by 8% against the US dollar and 8.5% on a
  Eurozone
                                                                                                   trade-weighted basis since mid-2012. Our global economic model
      France
                                                                                                   shows that a sustained 10% appreciation against the US dollar (around
     Germany
                                                                                                   5% in effective terms) would cut Eurozone GDP by 0.5%–0.7% within
Netherlands
                                                                                                   one year.
     Belgium

      Austria
                                                                                                   Figure 9
      Greece
                                                                                                   Impact of 10% appreciation of the euro against the US$
                                                                                                          Impact on GDP % difference from baseline
      Finland
                                                                                                   0.9
        Italy
                                                                                      2008–12, %
                -2                -1              0             1              2               3

                                                                                                                     With ECB rates down to zero
Source: Oxford Economics                                                                                             With floor at 0.5% on ECB rates



As well as a reduction in the labor required for each unit of output,
labor costs have fallen in some of the peripheral economies. Hourly                                -0.1

wages since 2008 are down by 14% in Greece and by 5% in Spain and
Ireland. Consequently, helped by an 8% fall in the trade-weighted value
of the euro, the relative cost of labor for each unit of output has fallen
by 36% in Ireland, 22% in Spain and 17% in Greece. These falls in                                                              Year 1
relative unit labor costs have made the goods and services produced in
these peripheral economies more competitive than they were in 2008.                                -1.2
                                                                                                                                                      Year 2



Figure 8                                                                                           Source: Oxford Economics

Unit labor costs
      2000 = 100
150
                                                                                                   This could deliver another blow to the already very weak economic
                                                                           Forecast
                                                                                                   conditions. But we think that, in the current circumstances, the impact
140
                                                                                                   of the appreciation will be mitigated by the fact that it is accompanied
130                                                                                                by a more stable environment. This will enable some companies,
120                                                                                                probably mainly in the core Eurozone countries, to start investing and
                                                                                                   hiring again.
110

100                                                                                                It will be important to watch indicators such as business confidence, or
 90                                                                                                orders for the more export-dependent countries like Germany, the
                                                                                                   Netherlands or Belgium, for any evidence of the euro’s rise having any
 80
                                                                                                   significant impact. For now, German businesses seem content with
 70
                     Ireland      Greece      Portugal                                             recent developments and prospects. Although their export sectors are
 60                  Italy        Spain                                                            much smaller, the countries that could suffer most from the
 50
                                                                                                   appreciation of the euro are the peripherals. Exports have been the
     2000       2002           2004    2006      2008    2010       2012    2014       2016        only growth areas in these countries over the past couple of years, but
                                                                                                   have been offset by ongoing recessions in the domestic economy. The
Source: Oxford Economics
                                                                                                   rise in the euro, if sustained, may undo some of the painful work
                                                                                                   undertaken to restore competitiveness.



14        Ernst  Young Eurozone Forecast Spring edition March 2013
Downside risks greatly diminished, but recovery will be slow




Figure 10                                                                                       But downside risks to the Eurozone from the external environment have
Exchange rate                                                                                   diminished significantly. In particular, strengthening demand from the
      US$/€                                                               1990 Q1 = 100         US and emerging markets will help to boost exports. Export
1.6                                                                                       115
                                                                                                performance will also benefit from the painful process of improving
                                                                                                competitiveness undertaken by the peripheral countries.
1.5                                                                                       110
                                                                                                The improvement in confidence in the real economy has so far been less
                                             Effective                                          pronounced than the gains in financial markets. However, we believe
                                             (right-hand side)
1.4                                                                                       105   that confidence will improve further over the course of the year. This
                                                                                                will give businesses that have been hoarding cash an incentive to invest
                                                                                                and hire additional workers. An improving economic backdrop should
1.3                                                                                       100
                                                                                                also, at the margin, increase the banks’ willingness to lend to
                                    US$                                                         companies.
                                    (left-hand side)
1.2                                                                                       95

                                                                                                Consumers’ willingness to make new purchases will be hampered by
                                                                                                further increases in unemployment in 2013. Ongoing fiscal tightening
1.1                                                                                       90
  Jan-11      May-11   Sep-11       Jan-12          May-12       Sep-12         Jan-13
                                                                                                also has a negative impact on household spending power. However, as
                                                                                                the Eurozone economy stabilizes and then recovers, consumer
Source: Oxford Economics, Reuters                                                               spending is expected to start growing again in 2014.

                                                                                                Fiscal policy adjustment can be particularly complex in the aftermath of
Despite these concerns, we have not lowered our growth or export
                                                                                                financial crises, given the need for supportive actions to revive growth.
forecasts because we do not expect the euro to stay at its current level
                                                                                                Consequently, Eurozone fiscal adjustment should rely not just on
for long. Compared with our estimates of an equilibrium value of the
                                                                                                improvements in the primary balance, but also on steps to boost
exchange rate, based on relative productivity and net foreign asset
                                                                                                potential growth. The former should be achieved by a combined
positions, we estimate that the euro is overvalued by a little below 10%
                                                                                                strategy of revenue increases and expenditure savings while preserving
at present. But, as uncertainty about the US fiscal stance clears and the
                                                                                                productive investment. The latter requires implementation of structural
pickup in growth there and in emerging markets becomes more
                                                                                                reforms to enhance productivity, as well as measures to reduce
obvious, we expect the euro to depreciate again towards US$1.25 by
                                                                                                economic distortions across the economy.
the end of this year.
                                                                                                Figure 11
… but the ECB is unlikely to respond for now
                                                                                                Proportion of 2013 fiscal tightening due to come from
The ECB has typically been very reluctant to respond to exchange rate                           spending cuts
movements, other than with a few, not too precise, verbal                                           Finland

interventions. This time will probably be no different. The ECB would                             Germany
need to see the stronger euro having a significant negative impact on                           Netherlands
activity before it intervenes. But if we are wrong, and the recent rise in
                                                                                                    France
the euro continues, the ECB may need to intervene, perhaps even with
                                                                                                    Greece
an interest rate cut, to stem any further appreciation.
                                                                                                       Italy

A stronger euro poses a new risk to the Eurozone outlook. However, it is                            Ireland
a risk that is much less toxic than fears of a Eurozone breakup, because                           Belgium
businesses are accustomed to this type of risk, having experienced such
                                                                                                   Portugal
bouts of appreciation before. By the standards of the last 10 years, the
                                                                                                     Spain
euro does not look particularly high.
                                                                                                    Austria

Conclusions                                                                                                    0        20        40         60        80        100           120
                                                                                                                                                                                  %


                                                                                                Source: Oxford Economics
The immediate risk of a Eurozone breakup has been averted. This
should bring significant relief to businesses and encourage investment
and hiring by those that can afford it. Consequently, we expect a return
to growth from mid-2013. However, the challenges to Eurozone growth
identified in our previous forecasts persist and will hold back the pace of
the recovery. Recent political developments in Italy, Spain and some
smaller Eurozone countries may add to these challenges.


                                                                                                                   Ernst  Young Eurozone Forecast Spring edition March 2013          15
Box 1
Public sector perspective: can growth-friendly fiscal sustainability be achieved?

Having accumulated large public sector debts,               Fiscal consolidation plans for 2013 show a                 raising measures, in order to sustain the
many Eurozone economies need to restructure                 significant focus on spending cuts. These                  consolidation efforts long enough to bring debt
their public finances. Consequently, in the                 account for at least 60% of the deficit-reduction          under control. However, higher taxation should
periphery in particular, a range of measures to             measures implemented in Austria, Belgium,                  not harm efficiency and has to minimize
restructure the public sector have been                     Ireland, Italy, Portugal and Spain. In contrast,           distortions, particularly in countries with high
proposed and implemented. These measures                    spending cuts make up just 25% of the planned              tax ratios. Simplifying the tax system by
include broadening tax bases, increasing tax                fiscal tightening in the Netherlands, 47% in               reducing excessive tax rates, broadening the
rates, making tax collection more efficient and             France and 55% in Greece.                                  tax base and eliminating loopholes and
effective, reducing public sector wage bills and                                                                       exemptions will help enhance revenue
reducing the scale and duration of welfare                  The chances of successfully achieving fiscal               collection. Meanwhile shifting the burden of
payments. The peripheral economies are also                 consolidation can be improved by keeping                   taxes from income and capital to consumption,
becoming more business-friendly by                          monetary conditions accommodative and risk                 pollution and property taxes could help reduce
strengthening their competition laws, reducing              premia contained. To hold down the latter, fiscal          distortions.
barriers to entry, making it easier to start                adjustment strategies need to be credible and
businesses and to hire and fire staff, and                  to anchor market expectations about fiscal                 After the financial crisis, policy challenges are
generally reducing bureaucracy.                             sustainability. A lack of credibility can make             even tougher
                                                            debt reduction much harder to achieve and lead
Studies of earlier episodes of fiscal                       to potentially self-fulfilling expectations about          Fiscal policy adjustment can be particularly
consolidation suggest that the Eurozone                     rising solvency risks. Where credibility of                complex in the aftermath of financial crises,
economies are more likely to achieve their fiscal           sustainable deficit reduction needs to be                  given the need for supportive actions to revive
goals if the measures are skewed towards cuts               established, it makes sense to put a significant           growth. Consequently, Eurozone fiscal-
in current expenditure — such as social security,           emphasis on spending cuts.                                 adjustment policies should rely not just on
social assistance, pensions and other welfare                                                                          improvements in the primary balance, but also
benefits — rather than towards tax rises and                Efficiency of the tax system should also                   on steps to boost growth. The latter require
cuts in investment spending. However, because               be a focus                                                 implementation of structural reforms to
private sector offsets are less for spending cuts                                                                      enhance productivity as well as measures to
than tax increases, the immediate negative                  Given the scale of the fiscal consolidation                reduce economic distortions across the
impact on the economy is large, while the                   needed in a number of Eurozone member                      economy. Improving the budget composition
benefits in terms of efficiency savings take time           states, raising tax revenues also constitutes              could be another important ingredient in the
to accrue. This makes this a tough policy to                an important part of their debt-reduction plans.           strategy to support growth by removing
sustain, both politically and socially.                     This reflects the need to maintain a balance               distortions that limit efficiency and raising labor
                                                            between expenditure savings and revenue-                   supply and savings.
Figure 12                                                                                Figure 13
World: GDP growth                                                                        Oil price, nominal
     % year                                                                                    US$ per barrel
6                                                          Forecast                      140                                                         Forecast

5
                                                                                         120
4

3                                                                                        100


2
                                                                                          80

1
                                                                                          60
0

-1                                                                                        40

-2
                                                                                          20
-3

-4                                                                                         0
     1999     2001   2003   2005   2007   2009   2011   2013    2015    2017                1999       2001     2003   2005   2007   2009   2011   2013     2015   2017

Source: Oxford Economics                                                                 Source: Oxford Economics




16          Ernst  Young Eurozone Forecast Spring edition March 2013
Downside risks greatly diminished, but recovery will be slow




Box 2
Forecast assumptions: international environment and commodity prices

Our forecast for the Eurozone depends                 disappointing, with the US economy flat and the         before picking up to around 1.5%–2% in
on a number of assumptions about the                  Eurozone still in decline. Survey evidence for          subsequent years. Among the leading emerging
international environment, world GDP and              early 2013 has been mixed, still pointing to            market economies, China is expected to grow by
trade and commodity prices. Here we explain           contraction in Europe but expansion in the US           over 8% this year, up from 7.8% in 2012, and
these assumptions.                                    and China. However, with the risks to the world         then pick up to 9% in 2014, while Indian growth
                                                      now much diminished and both the US and China           is forecast at just over 6% in 2013 and 7.1% in
With the main economies in the industrialized         showing signs of faster growth, we think the            2014, after the slowdown to an estimated 5.4%
world continuing to experience problems and the       financial market rally is justified. As a result, our   in 2012.
leading emerging markets all slowing, world GDP       forecasts are for world GDP to grow by 3.5% in
growth is estimated to have slowed to 3% from         2013 and then pick up to a little over 4% a year        Amid continuing uncertainty about political
3.6% in 2011 (on a purchasing power parity            in 2014–17. The stronger activity will be               developments in the Middle East, oil prices have
basis). The main problems emanated from               reflected in rising world trade, forecast to grow       remained around US$110-US$120 per barrel in
Europe, where fears of a Eurozone breakup,            by over 4% this year, more than double the              recent months, with falling output in sanctions-
continuing austerity by governments to bring          meager 1.8% rise in 2012, with a further                hit Iran being partly offset by rising output in
down fiscal deficits and debt, and rising levels of   acceleration to over 6% a year in the period            Iraq and some other OPEC countries. Our
unemployment weighed heavily on activity.             2014–17.                                                forecast is for oil prices to average US$108 a
                                                                                                              barrel in 2013, down 3% from 2012, with a small
But in recent months, global prospects have           Our growth forecast for the world’s major               rise to about US$113 seen by 2015 as stronger
been seen more optimistically by financial            economies remains broadly unchanged from our            world demand offsets downward pressure from
markets. Measures announced by the European           Winter 2012 report. The US economy is now               higher output in a number of important
authorities and the ECB appear to have greatly        expected to grow by a little over 2% in 2013 with       producers.
diminished the threat of an early Eurozone            a pickup to over 3%–3.5% in 2014–17. The
breakup, the US averted the danger of its “fiscal     Eurozone is seen contracting by 0.5% in 2013,
cliff” at the turn of the year and the Chinese        with a very modest recovery thereafter to
economy has started to grow faster again,             1%–1.5% a year in 2014–2017, much slower
allaying fears of a hard landing there. There are     than recoveries from previous recessions. The
as yet few signs of any rise in activity — data for   Japanese economy continues to struggle, with
the final quarter of 2012 was largely                 growth forecast to slow to just 0.7% this year




                                                                                                  Ernst  Young Eurozone Forecast Spring edition March 2013   17
Forecast for Eurozone
countries



Austria
Belgium
Cyprus
Estonia
Finland
France
Germany
Greece
Ireland
Italy
Luxembourg
Malta
Netherlands
Portugal
Slovakia
Slovenia
Spain




18   Ernst  Young Eurozone Forecast Spring edition March 2013
17 Eurozone countries                     Please visit our Eurozone website for access to additional information on the
                                          Ernst  Young Eurozone Forecast, the 17 individual country forecasts and additional
                                          perspectives and interview content. The site contains the latest version of our reports
                                          as well as an archive of previous releases.

                                          Download our new EY Forecasts in focus app, which allows you to create graphs and tables
                                          for the geographies most relevant to you. The app also makes it easy to share content and
                                          learn more about our other forecasts.




                                             To find out more, please visit www.ey.com/eurozone




                                                                                          Finland




                                                                                           Estonia




               Ireland
                                          Netherlands

                                                  Germany
                                   Belgium
                                              Luxembourg
                                                                          Slovakia
                                                                Austria
                                 France
                                                                  Slovenia

                                                        Italy




                         Spain

    Portugal                                                                          Greece




                                                                    Malta

                                                                                                                          Cyprus




                                                                                     Ernst  Young Eurozone Forecast Spring edition March 2013   19
Austria

•	 Conditions remain relatively difficult, despite Austria being better                          •	 Subdued GDP growth of 0.8% in 2013 will mainly come from private
     placed than other economies to tackle current and future adversities                              consumption, despite the fact that the latter is set to grow only
     and likely to outperform Eurozone peers.                                                          moderately. From 2014, as the Eurozone stabilizes further and
                                                                                                       external demand picks up more strongly, exports will also start to
•	 But the reduced threat of an imminent Eurozone breakup means that
                                                                                                       boost growth, and the GDP growth rate could rise to around 1.5%
     the risks to our forecast have become more balanced. And there is a
                                                                                                       a year.
     chance that these lower risks, along with investment conditions that
     are still favorable on the supply side, will encourage businesses to
     activate investment plans they had shelved earlier. This would boost
     growth beyond our current forecast.




Figure 14                                                                                        Figure 15
Contributions to GDP                                                                             Exports and foreign demand
     % year                                                                                            % year
5                                                                         Forecast               20                                                                                Forecast

                                                                                                                Foreign demand
4                                                        GDP                                     15
      Domestic demand
3
                                                                                                 10

2
                                                                                                  5
1
                                                                                                  0
0
                                                                                                  -5
-1                                                                                                                                                      Exports

                      Net exports                                                                -10
-2

-3                                                                                               -15


-4                                                                                               -20
     1980      1984     1988        1992   1996   2000   2004     2008   2012     2016                 1980       1984    1988     1992   1996     2000       2004   2008   2012      2016

Source: Oxford Economics                                                                         Source: Oxford Economics




Table 2
Austria (annual percentage changes unless specified)                                                                       Source: Oxford Economics
                                                           2012           2013           2014                 2015               2016        2017

GDP                                                             0.7         0.8           1.8                    1.5              1.6             1.5
        Private consumption                                     0.2         0.4           1.3                    1.5              1.6             1.6
        Fixed investment                                        1.7         1.0           2.8                    2.4              2.1             2.1
        Stockbuilding (% of GDP)                                1.7         1.7           1.0                    0.6              0.7             0.6
        Government consumption                                  0.3         0.3           1.7                    1.8              1.8             1.8
        Exports of goods and services                           2.0         2.0           5.7                    5.4              4.6             4.5
        Imports of goods and services                           1.2         1.6           4.8                    5.4              5.3             5.2
Consumer prices                                                 2.6         2.2           1.8                    1.8              1.8             1.8
Unemployment rate (level)                                       4.3         4.7           4.8                    4.6              4.5             4.5
Current account balance (% of GDP)                              1.7         1.7           2.5                    2.5              2.4             2.2
Government budget (% of GDP)                                   -3.3        -2.7           -2.1                  -1.9              -1.8           -1.6
Government debt (% of GDP)                                  73.9           74.9          74.7                   74.3             73.7            73.0




20          Ernst  Young Eurozone Forecast Spring edition March 2013
Belgium

•	 Belgium is set for another small 0.2% GDP decline in 2013.                         •	 Much more could be done to boost the pace of growth by
       Deleveraging in key markets means that exports are set to grow by                 accelerating the reform process, in particular by reorienting the
       just 1.5%. And consumers are increasingly concerned about labor                   burden of tax to encourage labor force participation and job
       market prospects and will only increase their spending moderately.                creation.
       At the same time, cuts to government spending and falling business
       investment will weigh on growth.
•	 The recovery will be slower than after previous recessions, as the
       pace of fiscal consolidation in Belgium quickens in 2014–15. And
       although export growth will pick up, the loss of competitiveness will
       mean a slower pickup than in the pre-crisis years. We expect GDP
       growth to be just 1% in 2014 and 1.2% in 2015.


Figure 16                                                                             Figure 17
GDP growth                                                                            Unemployment rate
       % year                                                                                %
3.0                        Forecast                                                   10.0                           Forecast

2.5                                                                                    9.5


2.0                                                                                    9.0


1.5                                                                                    8.5


1.0                                                                                    8.0


0.5                                                                                    7.5


0.0                                                                                    7.0


-0.5                                                                                   6.5


-1.0                                                                                   6.0
   2011         2012       2013       2014   2015     2016   2017                        2011            2012      2013         2014          2015   2016   2017

Source: Oxford Economics                                                              Source: Oxford Economics




Table 3
Belgium (annual percentage changes unless specified)                                                           Source: Oxford Economics

                                                    2012       2013        2014                  2015             2016            2017

GDP                                                  -0.2       -0.2           1.0                 1.2              1.5                1.8
        Private consumption                          -0.6           0.3        1.1                 1.4              1.4                1.5
        Fixed investment                             -0.4       -0.8           0.9                 1.7              2.2                2.5
        Stockbuilding (% of GDP)                      1.0           0.5        0.2                -0.4             -0.3                0.0
        Government consumption                        0.1       -0.2           -0.9               -0.7              0.3                0.9
        Exports of goods and services                 0.7           1.5        4.0                 4.5              3.8                3.5
        Imports of goods and services                 0.1           1.1        3.2                 3.8              3.8                3.6
Consumer prices                                       2.6           2.0        2.1                 2.1              1.8                1.8
Unemployment rate (level)                             7.4           7.9        8.1                 7.9              7.7                7.5
Current account balance (% of GDP)                   -0.6           1.4        1.8                 1.9              2.0                2.2
Government budget (% of GDP)                         -3.5       -2.8           -2.0               -1.3             -0.9                -0.8
Government debt (% of GDP)                          100.0     102.4       104.3                  105.4           105.6            105.3




                                                                                                           Ernst  Young Eurozone Forecast Spring edition March 2013   21
Cyprus

•	 The banking crisis in Cyprus triggered by the restructuring of Greek                           •	 The result of the recent election means an agreement on a bailout is
      sovereign debt is taking a heavy toll. The latest GDP data confirms                            likely in the next couple of months. New President Nicos
      that Cyprus is sliding deeper into recession.                                                  Anastasiades now has a mandate to seek the quick agreement with
                                                                                                     the EU and the IMF on the terms of a bailout that was part of his
•	 The strains that tipped the economy into recession show no sign of
                                                                                                     campaign agenda. It is estimated that Cyprus needs €10b to
      abating. Against this backdrop the shape of our forecast is broadly
                                                                                                     recapitalize its hobbled banking sector and a further €7.5b to
      unchanged. We expect GDP to contract by just over 2% in 2013,
                                                                                                     support public sector finances.
      similar to the outturn in 2012, and then by a further 1.1% in 2014.




Figure 18                                                                                         Figure 19
Real GDP growth                                                                                   Government budget balance
     % year                                                                                              €b                                                                                    % of GDP
8                                                                       Forecast                  0.8                                                                           Forecast                  4


6                                                                                                                                      €b
                                            Cyprus                                                0.4                                                                                                     2
                                                                                                                                       (left-hand side)


4
                                                                                                  0.0                                                                                                     0

2
                                                                                                  -0.4                                                                                                    -2
0

                                                                                                  -0.8                                                                                                    -4
-2


                                             Eurozone                                             -1.2                  % of GDP                                                                          -6
-4
                                                                                                                        (right-hand side)


-6                                                                                                -1.6                                                                                                    -8
     1996     1998   2000   2002   2004   2006   2008   2010     2012   2014       2016                   1995    1997     1999    2001     2003   2005    2007   2009   2011    2013   2015     2017

Source: Oxford Economics                                                                          Source: Oxford Economics




Table 4
Cyprus (annual percentage changes unless specified)                                                                           Source: Oxford Economics
                                                          2012              2013          2014                2015                2016              2017

GDP                                                        -2.3                -2.2        -1.1                  0.8                 2.5                  3.0
        Private consumption                                -2.7                -3.7        -2.6                  -0.2                1.8                  3.1
        Fixed investment                                  -24.2             -19.6         -12.5                  -8.2               -1.7                  3.5
        Stockbuilding (% of GDP)                           -0.3                0.1          0.2                  0.3                 0.3                  0.2
        Government consumption                             -4.8                -4.6        -2.4                  -0.5                1.0                  2.2
        Exports of goods and services                          2.7             2.9          3.5                  4.1                 5.0                  5.4
        Imports of goods and services                      -7.9                -4.3        -1.3                  0.9                 3.2                  5.6
Consumer prices                                                3.1             2.2          1.9                  1.6                 1.8                  2.0
Unemployment rate (level)                                 12.1               15.5          16.1                16.3                16.0              15.1
Current account balance (% of GDP)                         -7.8                -4.4        -3.5                  -3.5               -3.4              -3.2
Government budget (% of GDP)                               -4.9                -4.0        -3.4                  -2.7               -1.5              -1.5
Government debt (% of GDP)                                84.8             109.0          133.9               149.6               144.9             139.4




22          Ernst  Young Eurozone Forecast Spring edition March 2013
EY Eurozone forecast spring 2013
EY Eurozone forecast spring 2013
EY Eurozone forecast spring 2013
EY Eurozone forecast spring 2013
EY Eurozone forecast spring 2013
EY Eurozone forecast spring 2013
EY Eurozone forecast spring 2013
EY Eurozone forecast spring 2013
EY Eurozone forecast spring 2013
EY Eurozone forecast spring 2013
EY Eurozone forecast spring 2013
EY Eurozone forecast spring 2013
EY Eurozone forecast spring 2013
EY Eurozone forecast spring 2013
EY Eurozone forecast spring 2013
EY Eurozone forecast spring 2013
EY Eurozone forecast spring 2013
EY Eurozone forecast spring 2013
EY Eurozone forecast spring 2013
EY Eurozone forecast spring 2013
EY Eurozone forecast spring 2013
EY Eurozone forecast spring 2013
EY Eurozone forecast spring 2013
EY Eurozone forecast spring 2013

Mais conteúdo relacionado

Mais procurados

2012 global powers of retailing deloitte
2012 global powers of retailing deloitte2012 global powers of retailing deloitte
2012 global powers of retailing deloittemymarketingnet
 
120713 european banks reduce funding to eastern europe
120713   european banks reduce funding to eastern europe120713   european banks reduce funding to eastern europe
120713 european banks reduce funding to eastern europetheodekort
 
The euro zone crisis jkn-kini
The euro zone crisis jkn-kiniThe euro zone crisis jkn-kini
The euro zone crisis jkn-kiniJK-tiger
 
"Investment & Sustainability of Europe's Recovery" by M-O. Strauss-Kahn
"Investment & Sustainability of Europe's Recovery" by M-O. Strauss-Kahn"Investment & Sustainability of Europe's Recovery" by M-O. Strauss-Kahn
"Investment & Sustainability of Europe's Recovery" by M-O. Strauss-KahnMarc-Olivier Strauss-Kahn
 
Global Crisis Monitor June July 2009
Global Crisis Monitor   June July 2009Global Crisis Monitor   June July 2009
Global Crisis Monitor June July 2009Alvin Chua
 
Global powers of cp 2012 deloitte
Global powers of cp 2012 deloitte Global powers of cp 2012 deloitte
Global powers of cp 2012 deloitte mymarketingnet
 
First Quarter Review of Monetary Policy 2012-13
First Quarter Review of Monetary Policy 2012-13First Quarter Review of Monetary Policy 2012-13
First Quarter Review of Monetary Policy 2012-13Ankur Pandey
 
Mid-Year Global Economic Outlook Summer 2012
Mid-Year Global Economic Outlook Summer 2012Mid-Year Global Economic Outlook Summer 2012
Mid-Year Global Economic Outlook Summer 2012Dun & Bradstreet
 
Standard poorstakesvariousratingactionson16eurozonesovereigngovernments spm
Standard poorstakesvariousratingactionson16eurozonesovereigngovernments spmStandard poorstakesvariousratingactionson16eurozonesovereigngovernments spm
Standard poorstakesvariousratingactionson16eurozonesovereigngovernments spmFreelance
 
recent world trade crisis eurozone-debt-crisis
 recent world trade crisis eurozone-debt-crisis   recent world trade crisis eurozone-debt-crisis
recent world trade crisis eurozone-debt-crisis Shashank Singh
 
The Global Economy, No. 2/2011
The Global Economy, No. 2/2011The Global Economy, No. 2/2011
The Global Economy, No. 2/2011Swedbank
 
White paper perspectives on FX 2020
White paper perspectives on FX 2020White paper perspectives on FX 2020
White paper perspectives on FX 2020MaartenDeCauwer
 
The Global Economy, No 1/2011
The Global Economy, No 1/2011The Global Economy, No 1/2011
The Global Economy, No 1/2011Swedbank
 

Mais procurados (19)

2012 global powers of retailing deloitte
2012 global powers of retailing deloitte2012 global powers of retailing deloitte
2012 global powers of retailing deloitte
 
World Economic Situation and Prospects Monthly Briefing No. 38
World Economic Situation and Prospects Monthly Briefing No. 38World Economic Situation and Prospects Monthly Briefing No. 38
World Economic Situation and Prospects Monthly Briefing No. 38
 
120713 european banks reduce funding to eastern europe
120713   european banks reduce funding to eastern europe120713   european banks reduce funding to eastern europe
120713 european banks reduce funding to eastern europe
 
The euro zone crisis jkn-kini
The euro zone crisis jkn-kiniThe euro zone crisis jkn-kini
The euro zone crisis jkn-kini
 
"Investment & Sustainability of Europe's Recovery" by M-O. Strauss-Kahn
"Investment & Sustainability of Europe's Recovery" by M-O. Strauss-Kahn"Investment & Sustainability of Europe's Recovery" by M-O. Strauss-Kahn
"Investment & Sustainability of Europe's Recovery" by M-O. Strauss-Kahn
 
World Economic Situation and Prospects: Mid-2011 update
  World Economic Situation and Prospects: Mid-2011 update  World Economic Situation and Prospects: Mid-2011 update
World Economic Situation and Prospects: Mid-2011 update
 
Global Crisis Monitor June July 2009
Global Crisis Monitor   June July 2009Global Crisis Monitor   June July 2009
Global Crisis Monitor June July 2009
 
Global powers of cp 2012 deloitte
Global powers of cp 2012 deloitte Global powers of cp 2012 deloitte
Global powers of cp 2012 deloitte
 
CASE Network Studies and Analyses 439 - The Post-2007 Crises and Europe's Pla...
CASE Network Studies and Analyses 439 - The Post-2007 Crises and Europe's Pla...CASE Network Studies and Analyses 439 - The Post-2007 Crises and Europe's Pla...
CASE Network Studies and Analyses 439 - The Post-2007 Crises and Europe's Pla...
 
First Quarter Review of Monetary Policy 2012-13
First Quarter Review of Monetary Policy 2012-13First Quarter Review of Monetary Policy 2012-13
First Quarter Review of Monetary Policy 2012-13
 
MTBiz September 2014
MTBiz September 2014MTBiz September 2014
MTBiz September 2014
 
Mid-Year Global Economic Outlook Summer 2012
Mid-Year Global Economic Outlook Summer 2012Mid-Year Global Economic Outlook Summer 2012
Mid-Year Global Economic Outlook Summer 2012
 
Standard poorstakesvariousratingactionson16eurozonesovereigngovernments spm
Standard poorstakesvariousratingactionson16eurozonesovereigngovernments spmStandard poorstakesvariousratingactionson16eurozonesovereigngovernments spm
Standard poorstakesvariousratingactionson16eurozonesovereigngovernments spm
 
Economic Outlook | LIC Preneed Forum 2012
Economic Outlook  | LIC Preneed Forum 2012Economic Outlook  | LIC Preneed Forum 2012
Economic Outlook | LIC Preneed Forum 2012
 
recent world trade crisis eurozone-debt-crisis
 recent world trade crisis eurozone-debt-crisis   recent world trade crisis eurozone-debt-crisis
recent world trade crisis eurozone-debt-crisis
 
The Global Economy, No. 2/2011
The Global Economy, No. 2/2011The Global Economy, No. 2/2011
The Global Economy, No. 2/2011
 
R42377
R42377R42377
R42377
 
White paper perspectives on FX 2020
White paper perspectives on FX 2020White paper perspectives on FX 2020
White paper perspectives on FX 2020
 
The Global Economy, No 1/2011
The Global Economy, No 1/2011The Global Economy, No 1/2011
The Global Economy, No 1/2011
 

Destaque

EY Rapid-Growth-Markets-Forecast-July-2013
EY Rapid-Growth-Markets-Forecast-July-2013EY Rapid-Growth-Markets-Forecast-July-2013
EY Rapid-Growth-Markets-Forecast-July-2013Stephan Kuester
 
EY rapid growth markets forecast february 2014
EY rapid growth markets forecast february 2014EY rapid growth markets forecast february 2014
EY rapid growth markets forecast february 2014Stephan Kuester
 
EY Attractiveness Report Brazil Capturing The Momentum August 2012
EY Attractiveness Report Brazil Capturing The Momentum August 2012EY Attractiveness Report Brazil Capturing The Momentum August 2012
EY Attractiveness Report Brazil Capturing The Momentum August 2012Stephan Kuester
 
予測にもとづくネットワーク化制御系の安定化
予測にもとづくネットワーク化制御系の安定化予測にもとづくネットワーク化制御系の安定化
予測にもとづくネットワーク化制御系の安定化Masaaki Nagahara
 

Destaque (7)

Brazil
BrazilBrazil
Brazil
 
EY Rapid-Growth-Markets-Forecast-July-2013
EY Rapid-Growth-Markets-Forecast-July-2013EY Rapid-Growth-Markets-Forecast-July-2013
EY Rapid-Growth-Markets-Forecast-July-2013
 
Brazil
BrazilBrazil
Brazil
 
Brazil
BrazilBrazil
Brazil
 
EY rapid growth markets forecast february 2014
EY rapid growth markets forecast february 2014EY rapid growth markets forecast february 2014
EY rapid growth markets forecast february 2014
 
EY Attractiveness Report Brazil Capturing The Momentum August 2012
EY Attractiveness Report Brazil Capturing The Momentum August 2012EY Attractiveness Report Brazil Capturing The Momentum August 2012
EY Attractiveness Report Brazil Capturing The Momentum August 2012
 
予測にもとづくネットワーク化制御系の安定化
予測にもとづくネットワーク化制御系の安定化予測にもとづくネットワーク化制御系の安定化
予測にもとづくネットワーク化制御系の安定化
 

Semelhante a EY Eurozone forecast spring 2013

250 global powers_deloitte_2013
250 global powers_deloitte_2013250 global powers_deloitte_2013
250 global powers_deloitte_2013pluto1970
 
The future of Europe - International Business Report
The future of Europe - International Business Report The future of Europe - International Business Report
The future of Europe - International Business Report Grant Thornton
 
The Global Economy No. 4 - May 16, 2012
The Global Economy No. 4 -  May 16, 2012The Global Economy No. 4 -  May 16, 2012
The Global Economy No. 4 - May 16, 2012Swedbank
 
Global Powers of Retailing 2013
Global Powers of Retailing 2013Global Powers of Retailing 2013
Global Powers of Retailing 2013Melih ÖZCANLI
 
Declaracion de Mario Draghi (2 de agosto de 2012)
Declaracion de Mario Draghi (2 de agosto de 2012)Declaracion de Mario Draghi (2 de agosto de 2012)
Declaracion de Mario Draghi (2 de agosto de 2012)ManfredNolte
 
The Global Economy No. 1 - January 31, 2012
The Global Economy No. 1 -  January 31, 2012The Global Economy No. 1 -  January 31, 2012
The Global Economy No. 1 - January 31, 2012Swedbank
 
Economic outlook may_2013 (1)
Economic outlook may_2013 (1)Economic outlook may_2013 (1)
Economic outlook may_2013 (1)Michael Morakis
 
QNB’s expects global outlook to be gloomier than the OECD
QNB’s expects global outlook to be gloomier than the OECDQNB’s expects global outlook to be gloomier than the OECD
QNB’s expects global outlook to be gloomier than the OECDQNB Group
 
Global Powers of Retailing 2012
Global Powers of Retailing 2012Global Powers of Retailing 2012
Global Powers of Retailing 2012Melih ÖZCANLI
 
Global Powers of Consumer Products 2013
Global Powers of Consumer Products 2013Global Powers of Consumer Products 2013
Global Powers of Consumer Products 2013Melih ÖZCANLI
 
The Global Economy No. 2 - February 16, 2012
The Global Economy No. 2 -  February 16, 2012The Global Economy No. 2 -  February 16, 2012
The Global Economy No. 2 - February 16, 2012Swedbank
 
Swedbank's Global Economic Outlook, August 2011
Swedbank's Global Economic Outlook, August 2011Swedbank's Global Economic Outlook, August 2011
Swedbank's Global Economic Outlook, August 2011Swedbank
 
Crisis in European Union- Greece in Crisis
Crisis in European Union- Greece in CrisisCrisis in European Union- Greece in Crisis
Crisis in European Union- Greece in CrisisErhan Sozen
 
20120916 efar greece update_vs04
20120916 efar greece update_vs0420120916 efar greece update_vs04
20120916 efar greece update_vs04QNB Group
 
20120916 efar greece update_vs04
20120916 efar greece update_vs0420120916 efar greece update_vs04
20120916 efar greece update_vs04QNB Group
 
Greece will not be saved from a default
Greece will not be saved from a defaultGreece will not be saved from a default
Greece will not be saved from a defaultMarkets Beyond
 

Semelhante a EY Eurozone forecast spring 2013 (20)

250 global powers_deloitte_2013
250 global powers_deloitte_2013250 global powers_deloitte_2013
250 global powers_deloitte_2013
 
The future of Europe - International Business Report
The future of Europe - International Business Report The future of Europe - International Business Report
The future of Europe - International Business Report
 
Future of Europe (IBR 2013)
Future of Europe (IBR 2013)Future of Europe (IBR 2013)
Future of Europe (IBR 2013)
 
The Global Economy No. 4 - May 16, 2012
The Global Economy No. 4 -  May 16, 2012The Global Economy No. 4 -  May 16, 2012
The Global Economy No. 4 - May 16, 2012
 
Global Powers of Retailing 2013
Global Powers of Retailing 2013Global Powers of Retailing 2013
Global Powers of Retailing 2013
 
Declaracion de Mario Draghi (2 de agosto de 2012)
Declaracion de Mario Draghi (2 de agosto de 2012)Declaracion de Mario Draghi (2 de agosto de 2012)
Declaracion de Mario Draghi (2 de agosto de 2012)
 
The Global Economy No. 1 - January 31, 2012
The Global Economy No. 1 -  January 31, 2012The Global Economy No. 1 -  January 31, 2012
The Global Economy No. 1 - January 31, 2012
 
Economic outlook may_2013 (1)
Economic outlook may_2013 (1)Economic outlook may_2013 (1)
Economic outlook may_2013 (1)
 
QNB’s expects global outlook to be gloomier than the OECD
QNB’s expects global outlook to be gloomier than the OECDQNB’s expects global outlook to be gloomier than the OECD
QNB’s expects global outlook to be gloomier than the OECD
 
The future of Europe (IBR 2014)
The future of Europe (IBR 2014)The future of Europe (IBR 2014)
The future of Europe (IBR 2014)
 
Europe: Open for business?
Europe: Open for business?Europe: Open for business?
Europe: Open for business?
 
Global Powers of Retailing 2012
Global Powers of Retailing 2012Global Powers of Retailing 2012
Global Powers of Retailing 2012
 
Global Powers of Consumer Products 2013
Global Powers of Consumer Products 2013Global Powers of Consumer Products 2013
Global Powers of Consumer Products 2013
 
The Global Economy No. 2 - February 16, 2012
The Global Economy No. 2 -  February 16, 2012The Global Economy No. 2 -  February 16, 2012
The Global Economy No. 2 - February 16, 2012
 
Impact of Debt Crisis on EMU
Impact of Debt Crisis on EMUImpact of Debt Crisis on EMU
Impact of Debt Crisis on EMU
 
Swedbank's Global Economic Outlook, August 2011
Swedbank's Global Economic Outlook, August 2011Swedbank's Global Economic Outlook, August 2011
Swedbank's Global Economic Outlook, August 2011
 
Crisis in European Union- Greece in Crisis
Crisis in European Union- Greece in CrisisCrisis in European Union- Greece in Crisis
Crisis in European Union- Greece in Crisis
 
20120916 efar greece update_vs04
20120916 efar greece update_vs0420120916 efar greece update_vs04
20120916 efar greece update_vs04
 
20120916 efar greece update_vs04
20120916 efar greece update_vs0420120916 efar greece update_vs04
20120916 efar greece update_vs04
 
Greece will not be saved from a default
Greece will not be saved from a defaultGreece will not be saved from a default
Greece will not be saved from a default
 

Último

Start Selling Online in India | Get Started
Start Selling Online in India | Get StartedStart Selling Online in India | Get Started
Start Selling Online in India | Get Started Grocito
 
Advertise on Fordaq.com - Media Kit 2024 English
Advertise on Fordaq.com - Media Kit 2024 EnglishAdvertise on Fordaq.com - Media Kit 2024 English
Advertise on Fordaq.com - Media Kit 2024 EnglishFordaq
 
2023_EN. HYUNDAI CAPITAL SERVICES 2023 PERFORMANCE
2023_EN. HYUNDAI CAPITAL SERVICES 2023 PERFORMANCE2023_EN. HYUNDAI CAPITAL SERVICES 2023 PERFORMANCE
2023_EN. HYUNDAI CAPITAL SERVICES 2023 PERFORMANCEirhcs
 
Paul Turovsky - Real Estate Professional
Paul Turovsky - Real Estate ProfessionalPaul Turovsky - Real Estate Professional
Paul Turovsky - Real Estate ProfessionalPaul Turovsky
 
TNR Gold Shotgun Gold Project Presentation
TNR Gold Shotgun Gold Project PresentationTNR Gold Shotgun Gold Project Presentation
TNR Gold Shotgun Gold Project PresentationKirill Klip
 
Entrepreneurial ecosystem- Wider context
Entrepreneurial ecosystem- Wider contextEntrepreneurial ecosystem- Wider context
Entrepreneurial ecosystem- Wider contextP&CO
 
P&P- DP2 Brand Exploration Key Note 2024
P&P- DP2 Brand Exploration Key Note 2024P&P- DP2 Brand Exploration Key Note 2024
P&P- DP2 Brand Exploration Key Note 2024ktibbs1
 
Trian White Paper on Creating Value at Disney April 2024
Trian White Paper on Creating Value at Disney April 2024Trian White Paper on Creating Value at Disney April 2024
Trian White Paper on Creating Value at Disney April 2024Neil Kimberley
 
BeMetals Presentation_Updated_April 1, 2024.pdf
BeMetals Presentation_Updated_April 1, 2024.pdfBeMetals Presentation_Updated_April 1, 2024.pdf
BeMetals Presentation_Updated_April 1, 2024.pdfDerekIwanaka1
 
PPONE Updated FINAL Josie "Josi J" Jones.pdf
PPONE Updated FINAL Josie "Josi J" Jones.pdfPPONE Updated FINAL Josie "Josi J" Jones.pdf
PPONE Updated FINAL Josie "Josi J" Jones.pdfjkjones4
 
Pelago's pitch deck for their Series C funding round, valued at $58 million.
Pelago's pitch deck for their Series C funding round, valued at $58 million.Pelago's pitch deck for their Series C funding round, valued at $58 million.
Pelago's pitch deck for their Series C funding round, valued at $58 million.qilerongrong
 
Understanding market needs for startups 4_4_2024.pdf
Understanding market needs for startups 4_4_2024.pdfUnderstanding market needs for startups 4_4_2024.pdf
Understanding market needs for startups 4_4_2024.pdfRichard Guha
 
AI automation startup Nanonets' $29 Million pitch deck
AI automation startup Nanonets' $29 Million pitch deckAI automation startup Nanonets' $29 Million pitch deck
AI automation startup Nanonets' $29 Million pitch deckqilerongrong
 
第二十届文博会总体宣传册(Brochure of the 20th ICIF).pdf
第二十届文博会总体宣传册(Brochure of the 20th ICIF).pdf第二十届文博会总体宣传册(Brochure of the 20th ICIF).pdf
第二十届文博会总体宣传册(Brochure of the 20th ICIF).pdfe2927c
 
Saffron and Dates opportunities from Iran .pdf
Saffron and Dates opportunities from Iran .pdfSaffron and Dates opportunities from Iran .pdf
Saffron and Dates opportunities from Iran .pdfRezaSeif2
 
Ralph Dipiero, Unleash Your Brand's Power: Elevate Roi With Integrated Market...
Ralph Dipiero, Unleash Your Brand's Power: Elevate Roi With Integrated Market...Ralph Dipiero, Unleash Your Brand's Power: Elevate Roi With Integrated Market...
Ralph Dipiero, Unleash Your Brand's Power: Elevate Roi With Integrated Market...RalphDiPiero
 
Lessons from the Mittelstand - Dave Litwiller - Apr 2024 - Public.pptx
Lessons from the Mittelstand - Dave Litwiller - Apr 2024 - Public.pptxLessons from the Mittelstand - Dave Litwiller - Apr 2024 - Public.pptx
Lessons from the Mittelstand - Dave Litwiller - Apr 2024 - Public.pptxDave Litwiller
 
DIPLOMA IN PURCHASING AND SUPPLIES MANAG
DIPLOMA IN PURCHASING AND SUPPLIES MANAGDIPLOMA IN PURCHASING AND SUPPLIES MANAG
DIPLOMA IN PURCHASING AND SUPPLIES MANAGChrisWachira
 
BoSEU24 | Imogen Wethered | How to Sell a Business in a Decade
BoSEU24 | Imogen Wethered | How to Sell a Business in a DecadeBoSEU24 | Imogen Wethered | How to Sell a Business in a Decade
BoSEU24 | Imogen Wethered | How to Sell a Business in a DecadeBusiness of Software Conference
 
Roman Kyslyi: Використання та побудова LLM агентів (UA)
Roman Kyslyi: Використання та побудова LLM агентів (UA)Roman Kyslyi: Використання та побудова LLM агентів (UA)
Roman Kyslyi: Використання та побудова LLM агентів (UA)Lviv Startup Club
 

Último (20)

Start Selling Online in India | Get Started
Start Selling Online in India | Get StartedStart Selling Online in India | Get Started
Start Selling Online in India | Get Started
 
Advertise on Fordaq.com - Media Kit 2024 English
Advertise on Fordaq.com - Media Kit 2024 EnglishAdvertise on Fordaq.com - Media Kit 2024 English
Advertise on Fordaq.com - Media Kit 2024 English
 
2023_EN. HYUNDAI CAPITAL SERVICES 2023 PERFORMANCE
2023_EN. HYUNDAI CAPITAL SERVICES 2023 PERFORMANCE2023_EN. HYUNDAI CAPITAL SERVICES 2023 PERFORMANCE
2023_EN. HYUNDAI CAPITAL SERVICES 2023 PERFORMANCE
 
Paul Turovsky - Real Estate Professional
Paul Turovsky - Real Estate ProfessionalPaul Turovsky - Real Estate Professional
Paul Turovsky - Real Estate Professional
 
TNR Gold Shotgun Gold Project Presentation
TNR Gold Shotgun Gold Project PresentationTNR Gold Shotgun Gold Project Presentation
TNR Gold Shotgun Gold Project Presentation
 
Entrepreneurial ecosystem- Wider context
Entrepreneurial ecosystem- Wider contextEntrepreneurial ecosystem- Wider context
Entrepreneurial ecosystem- Wider context
 
P&P- DP2 Brand Exploration Key Note 2024
P&P- DP2 Brand Exploration Key Note 2024P&P- DP2 Brand Exploration Key Note 2024
P&P- DP2 Brand Exploration Key Note 2024
 
Trian White Paper on Creating Value at Disney April 2024
Trian White Paper on Creating Value at Disney April 2024Trian White Paper on Creating Value at Disney April 2024
Trian White Paper on Creating Value at Disney April 2024
 
BeMetals Presentation_Updated_April 1, 2024.pdf
BeMetals Presentation_Updated_April 1, 2024.pdfBeMetals Presentation_Updated_April 1, 2024.pdf
BeMetals Presentation_Updated_April 1, 2024.pdf
 
PPONE Updated FINAL Josie "Josi J" Jones.pdf
PPONE Updated FINAL Josie "Josi J" Jones.pdfPPONE Updated FINAL Josie "Josi J" Jones.pdf
PPONE Updated FINAL Josie "Josi J" Jones.pdf
 
Pelago's pitch deck for their Series C funding round, valued at $58 million.
Pelago's pitch deck for their Series C funding round, valued at $58 million.Pelago's pitch deck for their Series C funding round, valued at $58 million.
Pelago's pitch deck for their Series C funding round, valued at $58 million.
 
Understanding market needs for startups 4_4_2024.pdf
Understanding market needs for startups 4_4_2024.pdfUnderstanding market needs for startups 4_4_2024.pdf
Understanding market needs for startups 4_4_2024.pdf
 
AI automation startup Nanonets' $29 Million pitch deck
AI automation startup Nanonets' $29 Million pitch deckAI automation startup Nanonets' $29 Million pitch deck
AI automation startup Nanonets' $29 Million pitch deck
 
第二十届文博会总体宣传册(Brochure of the 20th ICIF).pdf
第二十届文博会总体宣传册(Brochure of the 20th ICIF).pdf第二十届文博会总体宣传册(Brochure of the 20th ICIF).pdf
第二十届文博会总体宣传册(Brochure of the 20th ICIF).pdf
 
Saffron and Dates opportunities from Iran .pdf
Saffron and Dates opportunities from Iran .pdfSaffron and Dates opportunities from Iran .pdf
Saffron and Dates opportunities from Iran .pdf
 
Ralph Dipiero, Unleash Your Brand's Power: Elevate Roi With Integrated Market...
Ralph Dipiero, Unleash Your Brand's Power: Elevate Roi With Integrated Market...Ralph Dipiero, Unleash Your Brand's Power: Elevate Roi With Integrated Market...
Ralph Dipiero, Unleash Your Brand's Power: Elevate Roi With Integrated Market...
 
Lessons from the Mittelstand - Dave Litwiller - Apr 2024 - Public.pptx
Lessons from the Mittelstand - Dave Litwiller - Apr 2024 - Public.pptxLessons from the Mittelstand - Dave Litwiller - Apr 2024 - Public.pptx
Lessons from the Mittelstand - Dave Litwiller - Apr 2024 - Public.pptx
 
DIPLOMA IN PURCHASING AND SUPPLIES MANAG
DIPLOMA IN PURCHASING AND SUPPLIES MANAGDIPLOMA IN PURCHASING AND SUPPLIES MANAG
DIPLOMA IN PURCHASING AND SUPPLIES MANAG
 
BoSEU24 | Imogen Wethered | How to Sell a Business in a Decade
BoSEU24 | Imogen Wethered | How to Sell a Business in a DecadeBoSEU24 | Imogen Wethered | How to Sell a Business in a Decade
BoSEU24 | Imogen Wethered | How to Sell a Business in a Decade
 
Roman Kyslyi: Використання та побудова LLM агентів (UA)
Roman Kyslyi: Використання та побудова LLM агентів (UA)Roman Kyslyi: Використання та побудова LLM агентів (UA)
Roman Kyslyi: Використання та побудова LLM агентів (UA)
 

EY Eurozone forecast spring 2013

  • 1. Eurozone Ernst & Young Eurozone Forecast Spring edition — March 2013
  • 3. Welcome News that the Eurozone economy shrank And while increased business investment to the first by 0.6% in the final quarter of 2012 — the and consumer spending will also play a Ernst & Young sharpest contraction since the beginning significant role in the years to come, further Eurozone Forecast of 2009 and the first time the region policy reforms will also drive growth — a of 2013. The failed to grow in any quarter during a broader tax base, the ongoing restructuring year began with calendar year — reverberated across the of the public sector and developments the hope that region. Even Germany, so long the engine such as reduced bureaucracy and stronger better times lay of the European economy, has suffered, competition laws will all come into play. ahead, but has so with its exports slumping by 2% in the far been marked fourth quarter of 2012, causing its overall It is important, too, to recognize that by news both Mark Otty economy to fall by 0.6%. globalization is still increasing the levels of good and bad. Area Managing Partner, cross-border trade and capital and labor Europe, Middle East, India Even after the More recently, the political deadlock arising integration. And despite the problems of and Africa difficulties of 2012 from the Italian elections has been an recent years, developed markets continue and the relief that a near-term Eurozone unwelcome reminder of the fragility of to be major drivers of world economic breakup has been avoided, challenges the Eurozone’s attempts to recover from activity, a point highlighted by our recent still remain. The outcome of February’s the financial crisis. The apparent rejection report, Globalization and new opportunities EU summit, which agreed to limit the EU’s of austerity measures by Italian voters, for growth. With technology integral to our spending in 2014-20 to €960b, 3% below together with the prospect of another increasingly digital and connected world, the current seven-year budget, prompted election within months, will do little to the presence of advanced broadband, reassurance that European leaders can put build much-needed confidence and has social and mobile technologies across aside individual country concerns and come already injected further uncertainty into the the Eurozone offers a chance for agile together to address ongoing challenges. markets. Such issues help to explain why businesses to leverage these capabilities we now expect the Eurozone’s GDP to into a significant competitive advantage. However, it would be disappointing if the decline by 0.5% in 2013, the same as the deal, which represents the first cut in the fall in 2012. Such opportunities are integral to unlocking EU’s budget in its 56-year history, also the huge reserves of cash that many serves to hamper future growth. Cuts in However, our forecast also expects some European companies have built up in funds to develop cross-border infrastructure pickup during the second half of the year, recent years. Only time will tell whether for example, would hit peripheral EU and in turn paving the way for growth of just this reluctance to invest will evaporate Eurozone countries particularly hard. over 1% in 2014. This will then be followed in the face of better economic news, but While balancing the books is clearly crucial, by slow-paced expansion, which will hit an with the shadow of the financial crisis policy-makers must also seek to create annual rate of 1.6% in 2017. A number seemingly poised to begin its slow retreat, a balance between austerity and the of different factors will underpin this slow and concerns about an imminent breakup of necessary investment to promote growth, recovery. Improved competitiveness and the Eurozone now fading, we can be hopeful the pursuit of which has intensified since strengthening demand from the US and that this year will see a corner turned and a the turn of the year. emerging markets will boost exports. brighter Europe emerge on the horizon. Contents 2 9 10 18 38 Slow growth, Highlights Downside Forecast for Detailed tables rapid change risks greatly Eurozone and charts diminished, but countries recovery will be slow Ernst & Young Eurozone Forecast Spring edition March 2013 1
  • 4. Slow growth, rapid change The Eurozone has avoided a breakup, the euro has survived and investors are regaining confidence in both. Yet improved faith in the region’s economic outlook has been accompanied by an appreciating currency as well as a surge in financial markets. Business leaders must integrate the messages from a fast-shifting economic environment into their planning and position their firms to cope with the challenges — and to grasp the opportunities — of slow growth accompanied by rapid change. The Eurozone economy remains in recession and we continue to believe Spotting potential hazards 2013 will be a year of mild contraction. Across the 17-nation bloc as a whole, we expect GDP will decline by 0.5% in 2013, similar to the fall in But not all the signals are green. The EU’s budget cutting may also 2012. But our Spring 2013 forecast foresees a mid-year turning point, erode confidence in Europe. Most of the new cuts come from a fund to with a modest recovery in growth during the second half and then build cross-border infrastructure that the European Commission (EC) growth of about 1% in 2014. That will be followed by slow-paced had argued would promote economic growth. The burden of cuts may expansion in subsequent years, we believe, with growth finally edging therefore fall most heavily upon peripheral EU and Eurozone countries up to 1.6% in 2017. with the poorest infrastructure — sending the wrong signals to business. Grasping the good news Business leaders keen for reassurance that Europe is determined to overcome its difficulties may also be discouraged by hesitant progress Both the policy backdrop and the economic environment continue to on the EU’s commitment to banking union. Proposals that the ECB evolve rapidly. Three key positives stand out. First is that a near-term assume regulatory control of the biggest banks appear secure. But Eurozone breakup has been avoided. That is confirmed both by the there are perceptions that European leaders are retreating from gauge of systemic risk compiled by the European Central Bank (ECB) proposals for a single resolution authority and for common guarantees and by the more optimistic assessment of financial markets, which for deposits. Concerns were highlighted by a report from the we share. International Monetary Fund (IMF), published on 13 February, which emphasized the need for a common resolution system and Second is the significant policy progress achieved represented by the depositor safety nets if the Eurozone is to create a credible single European Union (EU) budget. In early February, EU leaders agreed to supervisory mechanism. cap spending in the seven years from 2014–20 at €960b, 3% below the current seven-year budget. Though perceptions of the compromise deal A third negative for business and investor sentiment may be the vary, the agreement has bolstered confidence in the ability of EU controversial proposals, also unveiled in mid-February, for a financial leaders to confront and resolve difficult issues. transaction tax. The proposed levy of 0.1% on share and bond trades and 0.01% on derivative transactions involving a financial institution A third reason for enhanced optimism about the outlook is the headquartered in the tax area, or for a client located within the 11 EU announcement that the US and EU will open negotiations for a bilateral countries that have expressed interest in “enhanced cooperation” trade deal, which President Obama made during his February state of in this field, would in practice apply far beyond the core Eurozone the union address. The proposed “transatlantic trade and investment countries seeking its implementation. It is therefore likely to trigger partnership” seems a sincere attempt by developed economies to stiff resistance from the US, the UK and other nations with leading counter the shift of economic gravity towards rapid-growth markets financial centers. (RGMs) by reinvigorating their own economies. In their joint statement announcing the talks, set to open by the end of June, the US and EU estimated that a deal could add €86b of annual income to the EU economy by 2027, equal to 0.5% of GDP for the 27 member states. Though there are many impediments to agreement, especially over non-tariff barriers, with potential gains for the US equal to 0.4% of its GDP, there are strong incentives on both sides of the Atlantic that will drive the search for a deal. 2 Ernst & Young Eurozone Forecast Spring edition March 2013
  • 5. Focusing on the present Since Germany generates 30% of Eurozone GDP, a better outlook there is clearly beneficial for its suppliers elsewhere in the Eurozone. But the The decline in Eurozone GDP in the final quarter of 2012 was widely equanimity of German bosses in the face of recession and their optimism seen as disappointing, though broadly in line with our expectations. despite the strength of the euro continue to offer lessons for companies Overall, the economy of the 17-nation zone shrank by 0.6%, with a throughout the region. marked contraction in some core countries that had previously delivered a relatively robust performance. GDP in Germany fell 0.6% on Companies need to retain flexibility in their development planning and the quarter, while in France it was down 0.3% and the Netherlands saw to model multiple scenarios. But those with sound balance sheets contraction of 0.2%. Key peripheral economies were even weaker, with should now be seeking business opportunities, reviving investment Italy shrinking 0.9% and Spain showing contraction of 0.7%. options and starting to hire to underpin business development. The second lesson from Germany is that in capital goods at least, quality Following financial markets often continues to find customers, and even command a premium, when competition is intense. Selling on price alone is best avoided. In the meantime, financial markets have surged, apparently anticipating recovery despite the scarcity of green shoots in the seared European Seeking out finance business landscape. Companies seeking to borrow continue to face banks with reduced The market recovery appears to have been driven by an element of appetite to lend because of their own problems. As things start to pent-up demand among investors, combined with a partial solution to improve, the banks will be more able to deal with some of their the problem of the US “fiscal cliff,” and a belief that European leaders non-performing and non-core assets. Over time, this will make them are “making the right noises.” Some market indexes have breached better placed to lend to the sectors where they have confidence. peaks seen in 2007, before the onset of the financial crisis. Banks are now thought to be around two-thirds of the way through the A general belief that we are on the very slow road to recovery has deleveraging process. Their focus is still on selectively shrinking their increased the willingness of investors to put money into equities, rather balance sheets. Our survey, the European Banking Barometer, than low-yielding government bonds, or even the bonds of blue-chip published at the end of 2012, showed that companies in construction companies. Risk appetite has revived. Markets appear to be playing or commercial real estate, which were hit hard by the financial crisis, their long-standing role as leading indicators for the rest of the generally find it more difficult to obtain loans than those in sectors economy, but individual businesses and consumers, particularly viewed more favorably by lenders, such as biotech, health care or in southern Eurozone countries, are not yet sharing this information technology. These are seen as growth sectors offering newfound optimism. a better chance of repayment. Overall, sentiment around lending conditions has improved, but the sovereign debt crisis has had a Rebuilding business confidence profound impact on lending within the Eurozone. After falls in 2012 and 2013, EY expects a 2014 recovery in lending to the levels of 2011, Yet confidence does seem to be returning, though at different levels in rising further thereafter. different places. The EC’s economic sentiment indicator rose for the fourth successive month in February. Managers are getting more bullish With bank lending constrained, 2012 saw an upsurge in European about the outlook for business activity, with industry confidence and capital market borrowing by well-regarded companies. But smaller sentiment in services both increasing. Though confidence in Italy, companies, and those perceived as more risky, will probably continue France, Spain and Portugal remained below average, the strongest to struggle to access capital markets. improvement was in Germany, Denmark and Belgium. Ernst & Young Eurozone Forecast Spring edition March 2013 3
  • 6. Resurging interest in M&A eases upward pressure on the price of imported inputs, but exporters will find their competitiveness in markets beyond the Eurozone eroded, There are signs of an increase in mergers and acquisitions (M&A) and their margins may come under pressure. However, we believe activity in recent weeks. Though some of the most striking deals tabled the euro is now overvalued by about 10%, and expect it to depreciate have been in the US or UK, private equity activity also appears to be towards US$1.25 by the end of the year. Corporate leaders need picking up in the Eurozone. Some of this activity centers upon to shift the focus of their currency concerns from risks to the single restructuring or rolling over debt, rather than seeking out business currency to the risks around changes to the relative values of synergies. Generally speaking, companies see the recovery of financial leading currencies. markets as a cue to sell, but higher prices make buying businesses less attractive. Business leaders are once again thinking about strategic Companies should urgently review the potential impact upon their steps, as well as organic growth opportunities. But only if the recovery supply chains and upon their competitiveness both within the Eurozone in market sentiment is sustained, and accompanied by a recovery in and in their external markets. Currency shifts could augment pressure corporate profit margins, is the market upturn likely to provide a more on profit margins — or provide relief from rising input prices, depending confident backdrop for companies to push through M&A deals. upon location of manufacturing and markets. Caution will be required when negotiating contracts, and hedging will be necessary when the Some industry consolidation is expected to occur within the financial size of any deals that involve the euro and other leading international sector itself. According to our December 2012 European Banking currencies is material in relation to company revenues or funds. Barometer, banks in over-banked markets such as Germany expect considerable consolidation over the next one to three years. As Global leaders appear increasingly concerned about the threat of regulation intensifies, smaller banks that lack a clear niche will find competitive devaluations. A February statement from the G20 pledged, it increasingly difficult to achieve sustainable returns. “We will not target our exchange rates for competitive purposes.” Meanwhile leaders of the G7 richest-nations club insisted that Trusting the euro they remained committed to “market-determined” exchange rates. Yet their statements appear to have had only limited effects upon Yields on Spanish and Italian bonds fell last summer after remarks by currency markets. Mario Draghi, President of the ECB, that it would do “whatever it takes” to defend the euro. Allegations of corruption in Spain and political Companies that report in euros, but which generate extensive revenues uncertainty arising from the February election in Italy contributed to or profits outside the Eurozone, may find their figures undermined modest yield increases in the early weeks of 2013. But by the middle of by changes in currency valuations. Those reporting in US dollars or February, 10-year Spanish bonds were still offering yields of around sterling, on the other hand, may be able to show currency gains if 5.3% and their Italian counterparts yields of 4.4% — both around 200 recent rates are sustained. basis points below their levels of last summer. Responding to improving export markets Adapting to changing currency risks Yet the drag of currency appreciation comes against the backdrop of Improved investor enthusiasm for the Eurozone has prompted a rise in improving demand in many markets beyond the Eurozone. The the euro, which has appreciated by 8% against the US dollar and by Ernst & Young Rapid-Growth Markets Forecast: Winter 2013 noted an 8.5% on a trade-weighted basis since mid-2012. A stronger euro has uptick in global growth, led by economies in Asia and Latin America. It mixed consequences for Eurozone companies. Imports from outside the predicted that RGM growth overall will accelerate from 4.6% in 2012 to Eurozone become cheaper and therefore more cost-competitive with 5.3% this year and 6.4% in 2014. The first engine of global growth in goods produced within the single currency area. A stronger euro also the next few years will be Asian RGMs, whose expansion is expected to 4 Ernst & Young Eurozone Forecast Spring edition March 2013
  • 7. Slow growth, rapid change accelerate from 6.1% in 2012 to 7.8% in 2014. Simultaneously, growth Yet external competition for companies’ investment funds is in leading Latin American RGMs will rise from 2.6% in 2012 to 4.8% in intensifying. Leaders of international companies will be obliged 2014. Economic growth is also now expected to accelerate in the US to make tough choices when allocating scarce funds. As RGMs mature, following action to resolve the problem of the “fiscal cliff.” they grow larger; for businesses in some sectors their growth rates, now accelerating again, compare favorably with those of the Eurozone. Against this backdrop, businesses within the Eurozone are pursuing A stronger euro, and currency instability, can only reinforce the appeal export markets energetically. After a 3% rise in exports in 2012, we of developing capacity within regions and reducing reliance on expect exports to expand by 2.5% this year — despite a stronger euro — interregional supply chains. and by 4% in 2014. Spotting new investment opportunities Companies in peripheral countries undergoing substantial structural reform are likely to be among those showing the strongest export Business location decisions are built upon diverse factors. Stability, growth. We expect Greek merchandise exports to expand by over 9% in culture, and the availability of talent and skills can combine to create 2014, with Ireland, traditionally a strong exporter, and Spain achieving an attractive export base even where local demand is inadequate export growth of about 4.5% and 4% respectively. to sustain all of a firm’s capacity. A strong performance on all these criteria helps to ensure that Germany remains an attractive location Coping with weak Eurozone demand for many manufacturers. Overall demand within the Eurozone is likely to remain weak, however, Yet in recent months, structural reforms have awakened interest reinforcing our expectation of a “lost decade” of very limited growth for in some peripheral Eurozone countries. Companies contemplating many companies operating within the region. We expect that fiscal investments within the Eurozone may now need to look more widely tightening will amount to 1% of GDP this year, paring one percentage in their location decisions. They need to monitor recent and proposed point from Eurozone growth. Constraints on public spending in changes in business legislation in countries undergoing structural Eurozone peripheral countries, in particular, will hamper companies reform, to ensure they integrate improvements in attractiveness into serving markets such as health care, education, and local authorities. their decision-making process. Tax increases and improvements in the efficiency of tax collection, in But cost factors are also changing substantially in some countries the meantime, will continue to impair the ability or confidence of where competitiveness was previously penalized by high wages and consumers to spend in some countries. This will be compounded by a poor productivity. Since 2008, hourly wages have fallen by 14% continuing rise in unemployment. in Greece and by 5% in Spain and Ireland. Though productivity has stagnated in Greece overall, it has risen in Ireland and Spain. Overall, Weighing where to invest falls in relative unit labor costs have improved the competitiveness of these three economies since 2008. As business leaders and consumers gradually regain their confidence in the growth outlook for the Eurozone, business investment will The Eurozone remains central to business decisions accelerate. The pickup will be bolstered by technology renewal as companies adopt more efficient ways of conducting business. We A market of 330 million relatively rich and sophisticated consumers, believe Eurozone business investment will continue to fall in 2013, underpinned by high levels of public spending, is an alluring prospect shrinking by 2%, but will recover to grow on average by 3.5% a year for business. Little wonder that investors from around the world in 2014–17. continue to be attracted to the Eurozone even as the global centre of economic gravity slides eastward. Ernst & Young Eurozone Forecast Spring edition March 2013 5
  • 8. Six months ago, amid intense fears of a Greek exit, the whereabouts of future Eurozone borders were the biggest uncertainty confronted by companies operating across the region. Today, however, the outline looks more predictable, but the landscape itself is changing. Unemployment, austerity, structural reforms and technological development combine to create a business operating environment characterized by the most rapid pace of change seen across the 17-nation bloc since the common currency became legal tender 11 years ago in January 2002. The euro’s collapse was feared only months ago; the currency now threatens to throttle exporters as it strengthens. That is a powerful reminder that the Eurozone is a substantial but also vulnerable region of an increasingly integrated world in which economic fortunes are beyond the capacity of any single state to control. To thrive, business needs to scan for risk both within and beyond the Eurozone’s borders, constantly re-evaluating dangers and opportunities. Yet ultimately, no-one investing in a factory with a lifespan of 20 years or more can be sure of the returns that will accrue. Business remains an act of faith, in the Eurozone as elsewhere. 6 Ernst & Young Eurozone Forecast Spring edition March 2013
  • 9. Slow growth, rapid change Ernst & Young Eurozone Forecast Spring edition March 2013 7
  • 10. 8 Ernst & Young Eurozone Forecast Spring edition March 2013
  • 11. Highlights A stabilizing economy A slow return of confidence Policy reforms encouraged by a more normal risk environment • The risk of an imminent Eurozone • Over the last six months there has been • Public sector reforms are under way. breakup, which weighed heavily on a marked decline in risk premia priced In the peripheral countries particularly, business and consumer confidence for into Eurozone financial markets. a range of measures have been much of 2012, has been averted. We think that markets have risen proposed and implemented. too strongly, given that economic • The economy is expected to start fundamentals remain unsound and • This restructuring has involved growing again from mid-2013, but that some countries are facing broadening tax bases, increasing overall a decline of 0.5% is now forecast political uncertainty. tax rates, improving tax collection, for 2013, followed by very sluggish reducing public sector wage bills, and growth of only 1.4% a year in 2014–17. • The euro has already surrendered some lowering the scale and duration of of its earlier gains, but it is still up by 8% welfare payments. • Improving competitiveness and against the US dollar and 8.5% on a strengthening demand from the US and trade-weighted basis since mid-2012. • The peripheral economies have emerging markets will start to boost We expect it to fall later this year as strengthened competition laws. This Eurozone exports over the coming year. investors focus on underlying growth has reduced bureaucracy and made prospects in the US and emerging it easier to start businesses and to hire markets rather than the Eurozone. and fire staff. Other reforms will also • The return to very modest growth that we expect to see in the peripheral enhance the performance of these countries in 2014 will initially be driven • Although the economic climate remains struggling countries. by business investment and exports and difficult, confidence among businesses subsequently, once the labor market and consumers should return gradually, starts to improve, by consumer spending. as some of last year’s major threats recede. But we still expect business investment to shrink by 2% in 2013, • Some threats remain. Political concerns before recovering slowly to post average in Italy, Spain and some smaller growth of 3.5% a year in 2014–17. Eurozone countries could start to undermine confidence again. This could lead to renewed market volatility and • Weighed down by austerity measures, may heighten fears of “austerity fatigue” consumer spending is expected to fall in some of the peripheral countries. again in 2013, by 0.7%, before starting to grow slowly by an average of just over 1% a year in 2014–17. • Our forecast assumes that Italy does not backtrack on the economic reforms implemented by the last Government. • In addition, we estimate that fiscal Were the reform process to be tightening will amount to more than discontinued, we believe this would 1% of GDP again this year. This will cut have negative implications for the around one percentage point from Italian economy and the bond and GDP growth. equity markets. It also seems likely that it would lead investors to question the commitment of other peripheral economies to reform, most notably Spain. Ernst & Young Eurozone Forecast Spring edition March 2013 9
  • 12. Downside risks greatly diminished, but recovery will be slow 10 10 Ernst & Young Eurozone Forecast Spring edition March 2013 Summer edition June 2011
  • 13. Investors regain cautious optimism … Figure 1 Systemic stress indicator The risk of an imminent Eurozone breakup has been averted and we % 0.9 expect the economy to start growing again from mid-2013, albeit only slowly. Reflecting this reduced threat, the ECB’s gauge of systemic risk 0.8 has fallen sharply since July and is now back to levels last seen in 0.7 2007 — prior to the financial crisis. This is a clear signal that the Eurozone financial system now represents much less of a threat to its 0.6 economy. We share the confidence of the financial markets. We think 0.5 that the Eurozone is much more stable now than during most of 2012. 0.4 This improved risk environment should allow businesses that have been 0.3 hoarding cash to consider investing and hiring again. However, so far 0.2 the improvement in confidence in the real economy has been less pronounced than the gains in financial markets. According to the recent 0.1 EC surveys, Eurozone business confidence has only risen a little and 0.0 consumer confidence has merely stabilized. The disparity between 1999 2001 2003 2005 2007 2009 2011 financial markets and the real economy will probably continue for some time. Source: ECB, Haver Analytics Table 1 Forecast of the Eurozone economy (annual percentage changes unless specified) Source: Oxford Economics 2012 2013 2014 2015 2016 2017 GDP -0.5 -0.5 1.1 1.4 1.5 1.6 Private consumption -1.3 -0.7 0.7 1.1 1.3 1.4 Fixed investment -4.0 -2.0 2.1 2.9 2.8 2.5 Stockbuilding (% of GDP) 0.0 -0.1 0.0 0.0 0.1 0.0 Government consumption -0.1 -0.7 -0.3 0.3 0.6 0.8 Exports of goods and services 2.7 1.9 4.0 4.4 4.1 3.9 Imports of goods and services -0.7 0.7 3.7 4.5 4.3 3.9 Consumer prices 2.5 1.8 1.6 1.4 1.4 1.5 Unemployment rate (level) 11.4 12.2 12.2 11.8 11.4 10.9 Current account balance (% of GDP) 1.2 1.6 1.5 1.4 1.4 1.4 Government budget (% of GDP) -3.3 -2.5 -1.9 -1.5 -1.2 -0.9 Government debt (% of GDP) 92.7 95.3 96.2 96.8 96.8 96.2 ECB main refinancing rate (%) 0.9 0.8 0.8 0.8 0.8 0.9 Euro effective exchange rate (1995 = 100)* 115.5 118.7 114.3 110.7 110.3 110.1 Exchange rate ($ per € ) 1.28 1.27 1.21 1.17 1.17 1.17 * A rise in the effective exchange rate index corresponds to an appreciation of the euro Ernst Young Eurozone Forecast Spring edition March 2013 11
  • 14. The Eurozone still faces challenges that may partially undermine Figure 3 confidence again. The inconclusive elections in Italy, and political GDP growth developments in Spain and some smaller Eurozone countries are % year 3.0 sources of uncertainty. Forecast 2.5 1998–2007 average Figure 2 Business and consumer confidences 2.0 2005=100 1.5 120 1.0 110 0.5 100 0.0 -0.5 90 -1.0 80 2010 2012 2014 2016 2018 2020 2022 Source: Oxford Economics 70 60 … due to public and private sector deleveraging … 2000 2002 2004 2006 2008 2010 2012 Source: Haver Analytics Fiscal tightening is expected to be a medium-term drag on growth. We estimate that fiscal tightening will amount to more than 1% of GDP again this year, which will cut around one percentage point off GDP … but we still expect a “lost decade” … growth. From 2014 onwards, the pace of fiscal tightening should lessen, but at around 0.5%–1% of GDP a year, it will continue to dampen For some time we have been forecasting a “lost decade” of growth for growth. But, after several years of austerity, one of the key challenges the Eurozone. Many other forecasters have now come to the same now facing policy-makers in the Eurozone — both in the peripheral conclusion and our expectations remain broadly the same. It is likely countries and most others — is to apply public sector reforms in a way that 2013 will be a second consecutive year of mild contraction, with that does not continue to undermine growth (see Box 1 on the public GDP now forecast to fall by 0.5%. And we expect growth to average only sector perspective on page 16). 1.4% a year in 2014–17, almost a full percentage point below the 2.3% average in the 10 years preceding the global financial crisis. Banking sector deleveraging will also continue to constrain growth over Consequently, unemployment will be slow to fall, with the number of the forecast horizon. Although the banking system is now much less employed in 2017 still 3% (or 4.65 million people) below its 2008 of a systemic threat to the broader economy than a year ago, it is peak. The slow growth environment will increasingly force businesses to not yet in a position to drive an economic upswing through rapid look beyond their home markets in search of opportunities in the lending growth. In the ECB’s latest bank lending survey, conducted rapidly growing economies of Asia and Latin America, as well as to the in January 2013, banks showed that they were not ready to ease recovering US economy (see Box 2 on the international environment credit standards yet. Generally, tight credit conditions will weigh on on page 17). investment and consumer spending. 12 Ernst Young Eurozone Forecast Spring edition March 2013
  • 15. Downside risks greatly diminished, but recovery will be slow Figure 4 … and high unemployment Lending growth to non-financial companies % year A further rise in unemployment in the short term, and only a slow 20 Forecast decline from 2014, is likely to be another impediment to growth. Unemployment in the Eurozone overall reached a record high of 11.7% 15 in December 2012, with the jobless rates in Spain and Greece at more than 26%. With productivity barely back to pre-crisis levels, companies and governments are still trying to adjust staff levels to enhance 10 efficiency and restore profitability. By the end of 2017, we expect the unemployment rate to still be just above 11%, and the number of unemployed to be around 6.5 million higher than at the start of the 5 financial crisis. 0 Signs that reforms in the periphery are bearing fruit The contrast between low growth in the core Eurozone nations and -5 2000 2002 2004 2006 2008 2010 2012 2014 2016 ongoing recession in the peripheral countries will remain stark this year. Nevertheless, there are some tentative signs that the situation beyond Source: Oxford Economics the core nations is improving. We expect the pace of contraction in the periphery to slow from 1.9% in 2012 to 1.4% in 2013, before a return to growth in early 2014. Lending to non-financial companies is expected to expand by just 1.2% on average over the next five years, far below the 6.8% annual average Figure 6 of the five years preceding the 2008–09 global financial crisis. Weak credit growth will mean that companies wishing to invest will have to GDP 2008 Q1 = 100, constant prices rely more on internally generated funds and raising capital via financial 110 Forecast markets than they did prior to 2008. The recent falls in the risk premia embedded in equity and bond markets should make it easier and 105 cheaper for companies to raise external finance from markets, thereby partly offsetting tight financing from banks. We expect business Other Eurozone countries 100 investment to shrink by a further 2% in 2013, before growing by an average of 3.5% a year in 2014–17. 95 Figure 5 Greece, Ireland, Italy, Investment, private sector business 90 Portugal and Spain % 10 Forecast 85 7 4 80 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1 Source: Oxford Economics -2 -5 Indeed, in parts of the periphery, painful work being undertaken to -8 reform economies is already yielding results in the form of improving -11 international competitiveness. -14 Since the onset of the global financial crisis in 2008, employment in the -17 periphery has fallen by 9%, or 5 million people. In the case of Spain, -20 Ireland and Portugal, employment has fallen further than output, 2000 2002 2004 2006 2008 2010 2012 2014 2016 thereby providing a boost to productivity. Since 2008, output per Source: Oxford Economics worker has increased by 2.4% in Spain, 1.7% in Ireland and 1% in Portugal. But in the case of Italy and Greece, productivity has actually fallen since 2008 — both by about 1%. In Greece this has occurred despite a steep fall in employment, but in Italy it reflects a decline in Ernst Young Eurozone Forecast Spring edition March 2013 13
  • 16. employment of just 1.9% over a period when output has fallen by 5.3%. By 2014, we expect the peripheral Eurozone countries with the fastest Employment laws have made it difficult for Italian companies to adjust export growth to be Greece, Ireland and Spain — at 4.3%, 4.4% and 4.2% the size of their workforces as output has fallen. However, Italy has respectively. These are the three countries that have seen the largest introduced legislation that will make it easier for companies to make improvement in their relative unit labor costs, and hence workers redundant when needed. competitiveness, since 2008. This will help these countries exit recession and allow gains in economic activity to accompany Figure 7 job creation. Productivity growth Spain Appreciation of the euro could curb Eurozone growth … Slovakia Ireland One downside of the improvement in investor confidence has been the Portugal appreciation of the euro, up by 8% against the US dollar and 8.5% on a Eurozone trade-weighted basis since mid-2012. Our global economic model France shows that a sustained 10% appreciation against the US dollar (around Germany 5% in effective terms) would cut Eurozone GDP by 0.5%–0.7% within Netherlands one year. Belgium Austria Figure 9 Greece Impact of 10% appreciation of the euro against the US$ Impact on GDP % difference from baseline Finland 0.9 Italy 2008–12, % -2 -1 0 1 2 3 With ECB rates down to zero Source: Oxford Economics With floor at 0.5% on ECB rates As well as a reduction in the labor required for each unit of output, labor costs have fallen in some of the peripheral economies. Hourly -0.1 wages since 2008 are down by 14% in Greece and by 5% in Spain and Ireland. Consequently, helped by an 8% fall in the trade-weighted value of the euro, the relative cost of labor for each unit of output has fallen by 36% in Ireland, 22% in Spain and 17% in Greece. These falls in Year 1 relative unit labor costs have made the goods and services produced in these peripheral economies more competitive than they were in 2008. -1.2 Year 2 Figure 8 Source: Oxford Economics Unit labor costs 2000 = 100 150 This could deliver another blow to the already very weak economic Forecast conditions. But we think that, in the current circumstances, the impact 140 of the appreciation will be mitigated by the fact that it is accompanied 130 by a more stable environment. This will enable some companies, 120 probably mainly in the core Eurozone countries, to start investing and hiring again. 110 100 It will be important to watch indicators such as business confidence, or 90 orders for the more export-dependent countries like Germany, the Netherlands or Belgium, for any evidence of the euro’s rise having any 80 significant impact. For now, German businesses seem content with 70 Ireland Greece Portugal recent developments and prospects. Although their export sectors are 60 Italy Spain much smaller, the countries that could suffer most from the 50 appreciation of the euro are the peripherals. Exports have been the 2000 2002 2004 2006 2008 2010 2012 2014 2016 only growth areas in these countries over the past couple of years, but have been offset by ongoing recessions in the domestic economy. The Source: Oxford Economics rise in the euro, if sustained, may undo some of the painful work undertaken to restore competitiveness. 14 Ernst Young Eurozone Forecast Spring edition March 2013
  • 17. Downside risks greatly diminished, but recovery will be slow Figure 10 But downside risks to the Eurozone from the external environment have Exchange rate diminished significantly. In particular, strengthening demand from the US$/€ 1990 Q1 = 100 US and emerging markets will help to boost exports. Export 1.6 115 performance will also benefit from the painful process of improving competitiveness undertaken by the peripheral countries. 1.5 110 The improvement in confidence in the real economy has so far been less Effective pronounced than the gains in financial markets. However, we believe (right-hand side) 1.4 105 that confidence will improve further over the course of the year. This will give businesses that have been hoarding cash an incentive to invest and hire additional workers. An improving economic backdrop should 1.3 100 also, at the margin, increase the banks’ willingness to lend to US$ companies. (left-hand side) 1.2 95 Consumers’ willingness to make new purchases will be hampered by further increases in unemployment in 2013. Ongoing fiscal tightening 1.1 90 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 also has a negative impact on household spending power. However, as the Eurozone economy stabilizes and then recovers, consumer Source: Oxford Economics, Reuters spending is expected to start growing again in 2014. Fiscal policy adjustment can be particularly complex in the aftermath of Despite these concerns, we have not lowered our growth or export financial crises, given the need for supportive actions to revive growth. forecasts because we do not expect the euro to stay at its current level Consequently, Eurozone fiscal adjustment should rely not just on for long. Compared with our estimates of an equilibrium value of the improvements in the primary balance, but also on steps to boost exchange rate, based on relative productivity and net foreign asset potential growth. The former should be achieved by a combined positions, we estimate that the euro is overvalued by a little below 10% strategy of revenue increases and expenditure savings while preserving at present. But, as uncertainty about the US fiscal stance clears and the productive investment. The latter requires implementation of structural pickup in growth there and in emerging markets becomes more reforms to enhance productivity, as well as measures to reduce obvious, we expect the euro to depreciate again towards US$1.25 by economic distortions across the economy. the end of this year. Figure 11 … but the ECB is unlikely to respond for now Proportion of 2013 fiscal tightening due to come from The ECB has typically been very reluctant to respond to exchange rate spending cuts movements, other than with a few, not too precise, verbal Finland interventions. This time will probably be no different. The ECB would Germany need to see the stronger euro having a significant negative impact on Netherlands activity before it intervenes. But if we are wrong, and the recent rise in France the euro continues, the ECB may need to intervene, perhaps even with Greece an interest rate cut, to stem any further appreciation. Italy A stronger euro poses a new risk to the Eurozone outlook. However, it is Ireland a risk that is much less toxic than fears of a Eurozone breakup, because Belgium businesses are accustomed to this type of risk, having experienced such Portugal bouts of appreciation before. By the standards of the last 10 years, the Spain euro does not look particularly high. Austria Conclusions 0 20 40 60 80 100 120 % Source: Oxford Economics The immediate risk of a Eurozone breakup has been averted. This should bring significant relief to businesses and encourage investment and hiring by those that can afford it. Consequently, we expect a return to growth from mid-2013. However, the challenges to Eurozone growth identified in our previous forecasts persist and will hold back the pace of the recovery. Recent political developments in Italy, Spain and some smaller Eurozone countries may add to these challenges. Ernst Young Eurozone Forecast Spring edition March 2013 15
  • 18. Box 1 Public sector perspective: can growth-friendly fiscal sustainability be achieved? Having accumulated large public sector debts, Fiscal consolidation plans for 2013 show a raising measures, in order to sustain the many Eurozone economies need to restructure significant focus on spending cuts. These consolidation efforts long enough to bring debt their public finances. Consequently, in the account for at least 60% of the deficit-reduction under control. However, higher taxation should periphery in particular, a range of measures to measures implemented in Austria, Belgium, not harm efficiency and has to minimize restructure the public sector have been Ireland, Italy, Portugal and Spain. In contrast, distortions, particularly in countries with high proposed and implemented. These measures spending cuts make up just 25% of the planned tax ratios. Simplifying the tax system by include broadening tax bases, increasing tax fiscal tightening in the Netherlands, 47% in reducing excessive tax rates, broadening the rates, making tax collection more efficient and France and 55% in Greece. tax base and eliminating loopholes and effective, reducing public sector wage bills and exemptions will help enhance revenue reducing the scale and duration of welfare The chances of successfully achieving fiscal collection. Meanwhile shifting the burden of payments. The peripheral economies are also consolidation can be improved by keeping taxes from income and capital to consumption, becoming more business-friendly by monetary conditions accommodative and risk pollution and property taxes could help reduce strengthening their competition laws, reducing premia contained. To hold down the latter, fiscal distortions. barriers to entry, making it easier to start adjustment strategies need to be credible and businesses and to hire and fire staff, and to anchor market expectations about fiscal After the financial crisis, policy challenges are generally reducing bureaucracy. sustainability. A lack of credibility can make even tougher debt reduction much harder to achieve and lead Studies of earlier episodes of fiscal to potentially self-fulfilling expectations about Fiscal policy adjustment can be particularly consolidation suggest that the Eurozone rising solvency risks. Where credibility of complex in the aftermath of financial crises, economies are more likely to achieve their fiscal sustainable deficit reduction needs to be given the need for supportive actions to revive goals if the measures are skewed towards cuts established, it makes sense to put a significant growth. Consequently, Eurozone fiscal- in current expenditure — such as social security, emphasis on spending cuts. adjustment policies should rely not just on social assistance, pensions and other welfare improvements in the primary balance, but also benefits — rather than towards tax rises and Efficiency of the tax system should also on steps to boost growth. The latter require cuts in investment spending. However, because be a focus implementation of structural reforms to private sector offsets are less for spending cuts enhance productivity as well as measures to than tax increases, the immediate negative Given the scale of the fiscal consolidation reduce economic distortions across the impact on the economy is large, while the needed in a number of Eurozone member economy. Improving the budget composition benefits in terms of efficiency savings take time states, raising tax revenues also constitutes could be another important ingredient in the to accrue. This makes this a tough policy to an important part of their debt-reduction plans. strategy to support growth by removing sustain, both politically and socially. This reflects the need to maintain a balance distortions that limit efficiency and raising labor between expenditure savings and revenue- supply and savings. Figure 12 Figure 13 World: GDP growth Oil price, nominal % year US$ per barrel 6 Forecast 140 Forecast 5 120 4 3 100 2 80 1 60 0 -1 40 -2 20 -3 -4 0 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Source: Oxford Economics Source: Oxford Economics 16 Ernst Young Eurozone Forecast Spring edition March 2013
  • 19. Downside risks greatly diminished, but recovery will be slow Box 2 Forecast assumptions: international environment and commodity prices Our forecast for the Eurozone depends disappointing, with the US economy flat and the before picking up to around 1.5%–2% in on a number of assumptions about the Eurozone still in decline. Survey evidence for subsequent years. Among the leading emerging international environment, world GDP and early 2013 has been mixed, still pointing to market economies, China is expected to grow by trade and commodity prices. Here we explain contraction in Europe but expansion in the US over 8% this year, up from 7.8% in 2012, and these assumptions. and China. However, with the risks to the world then pick up to 9% in 2014, while Indian growth now much diminished and both the US and China is forecast at just over 6% in 2013 and 7.1% in With the main economies in the industrialized showing signs of faster growth, we think the 2014, after the slowdown to an estimated 5.4% world continuing to experience problems and the financial market rally is justified. As a result, our in 2012. leading emerging markets all slowing, world GDP forecasts are for world GDP to grow by 3.5% in growth is estimated to have slowed to 3% from 2013 and then pick up to a little over 4% a year Amid continuing uncertainty about political 3.6% in 2011 (on a purchasing power parity in 2014–17. The stronger activity will be developments in the Middle East, oil prices have basis). The main problems emanated from reflected in rising world trade, forecast to grow remained around US$110-US$120 per barrel in Europe, where fears of a Eurozone breakup, by over 4% this year, more than double the recent months, with falling output in sanctions- continuing austerity by governments to bring meager 1.8% rise in 2012, with a further hit Iran being partly offset by rising output in down fiscal deficits and debt, and rising levels of acceleration to over 6% a year in the period Iraq and some other OPEC countries. Our unemployment weighed heavily on activity. 2014–17. forecast is for oil prices to average US$108 a barrel in 2013, down 3% from 2012, with a small But in recent months, global prospects have Our growth forecast for the world’s major rise to about US$113 seen by 2015 as stronger been seen more optimistically by financial economies remains broadly unchanged from our world demand offsets downward pressure from markets. Measures announced by the European Winter 2012 report. The US economy is now higher output in a number of important authorities and the ECB appear to have greatly expected to grow by a little over 2% in 2013 with producers. diminished the threat of an early Eurozone a pickup to over 3%–3.5% in 2014–17. The breakup, the US averted the danger of its “fiscal Eurozone is seen contracting by 0.5% in 2013, cliff” at the turn of the year and the Chinese with a very modest recovery thereafter to economy has started to grow faster again, 1%–1.5% a year in 2014–2017, much slower allaying fears of a hard landing there. There are than recoveries from previous recessions. The as yet few signs of any rise in activity — data for Japanese economy continues to struggle, with the final quarter of 2012 was largely growth forecast to slow to just 0.7% this year Ernst Young Eurozone Forecast Spring edition March 2013 17
  • 21. 17 Eurozone countries Please visit our Eurozone website for access to additional information on the Ernst Young Eurozone Forecast, the 17 individual country forecasts and additional perspectives and interview content. The site contains the latest version of our reports as well as an archive of previous releases. Download our new EY Forecasts in focus app, which allows you to create graphs and tables for the geographies most relevant to you. The app also makes it easy to share content and learn more about our other forecasts. To find out more, please visit www.ey.com/eurozone Finland Estonia Ireland Netherlands Germany Belgium Luxembourg Slovakia Austria France Slovenia Italy Spain Portugal Greece Malta Cyprus Ernst Young Eurozone Forecast Spring edition March 2013 19
  • 22. Austria • Conditions remain relatively difficult, despite Austria being better • Subdued GDP growth of 0.8% in 2013 will mainly come from private placed than other economies to tackle current and future adversities consumption, despite the fact that the latter is set to grow only and likely to outperform Eurozone peers. moderately. From 2014, as the Eurozone stabilizes further and external demand picks up more strongly, exports will also start to • But the reduced threat of an imminent Eurozone breakup means that boost growth, and the GDP growth rate could rise to around 1.5% the risks to our forecast have become more balanced. And there is a a year. chance that these lower risks, along with investment conditions that are still favorable on the supply side, will encourage businesses to activate investment plans they had shelved earlier. This would boost growth beyond our current forecast. Figure 14 Figure 15 Contributions to GDP Exports and foreign demand % year % year 5 Forecast 20 Forecast Foreign demand 4 GDP 15 Domestic demand 3 10 2 5 1 0 0 -5 -1 Exports Net exports -10 -2 -3 -15 -4 -20 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 Source: Oxford Economics Source: Oxford Economics Table 2 Austria (annual percentage changes unless specified) Source: Oxford Economics 2012 2013 2014 2015 2016 2017 GDP 0.7 0.8 1.8 1.5 1.6 1.5 Private consumption 0.2 0.4 1.3 1.5 1.6 1.6 Fixed investment 1.7 1.0 2.8 2.4 2.1 2.1 Stockbuilding (% of GDP) 1.7 1.7 1.0 0.6 0.7 0.6 Government consumption 0.3 0.3 1.7 1.8 1.8 1.8 Exports of goods and services 2.0 2.0 5.7 5.4 4.6 4.5 Imports of goods and services 1.2 1.6 4.8 5.4 5.3 5.2 Consumer prices 2.6 2.2 1.8 1.8 1.8 1.8 Unemployment rate (level) 4.3 4.7 4.8 4.6 4.5 4.5 Current account balance (% of GDP) 1.7 1.7 2.5 2.5 2.4 2.2 Government budget (% of GDP) -3.3 -2.7 -2.1 -1.9 -1.8 -1.6 Government debt (% of GDP) 73.9 74.9 74.7 74.3 73.7 73.0 20 Ernst Young Eurozone Forecast Spring edition March 2013
  • 23. Belgium • Belgium is set for another small 0.2% GDP decline in 2013. • Much more could be done to boost the pace of growth by Deleveraging in key markets means that exports are set to grow by accelerating the reform process, in particular by reorienting the just 1.5%. And consumers are increasingly concerned about labor burden of tax to encourage labor force participation and job market prospects and will only increase their spending moderately. creation. At the same time, cuts to government spending and falling business investment will weigh on growth. • The recovery will be slower than after previous recessions, as the pace of fiscal consolidation in Belgium quickens in 2014–15. And although export growth will pick up, the loss of competitiveness will mean a slower pickup than in the pre-crisis years. We expect GDP growth to be just 1% in 2014 and 1.2% in 2015. Figure 16 Figure 17 GDP growth Unemployment rate % year % 3.0 Forecast 10.0 Forecast 2.5 9.5 2.0 9.0 1.5 8.5 1.0 8.0 0.5 7.5 0.0 7.0 -0.5 6.5 -1.0 6.0 2011 2012 2013 2014 2015 2016 2017 2011 2012 2013 2014 2015 2016 2017 Source: Oxford Economics Source: Oxford Economics Table 3 Belgium (annual percentage changes unless specified) Source: Oxford Economics 2012 2013 2014 2015 2016 2017 GDP -0.2 -0.2 1.0 1.2 1.5 1.8 Private consumption -0.6 0.3 1.1 1.4 1.4 1.5 Fixed investment -0.4 -0.8 0.9 1.7 2.2 2.5 Stockbuilding (% of GDP) 1.0 0.5 0.2 -0.4 -0.3 0.0 Government consumption 0.1 -0.2 -0.9 -0.7 0.3 0.9 Exports of goods and services 0.7 1.5 4.0 4.5 3.8 3.5 Imports of goods and services 0.1 1.1 3.2 3.8 3.8 3.6 Consumer prices 2.6 2.0 2.1 2.1 1.8 1.8 Unemployment rate (level) 7.4 7.9 8.1 7.9 7.7 7.5 Current account balance (% of GDP) -0.6 1.4 1.8 1.9 2.0 2.2 Government budget (% of GDP) -3.5 -2.8 -2.0 -1.3 -0.9 -0.8 Government debt (% of GDP) 100.0 102.4 104.3 105.4 105.6 105.3 Ernst Young Eurozone Forecast Spring edition March 2013 21
  • 24. Cyprus • The banking crisis in Cyprus triggered by the restructuring of Greek • The result of the recent election means an agreement on a bailout is sovereign debt is taking a heavy toll. The latest GDP data confirms likely in the next couple of months. New President Nicos that Cyprus is sliding deeper into recession. Anastasiades now has a mandate to seek the quick agreement with the EU and the IMF on the terms of a bailout that was part of his • The strains that tipped the economy into recession show no sign of campaign agenda. It is estimated that Cyprus needs €10b to abating. Against this backdrop the shape of our forecast is broadly recapitalize its hobbled banking sector and a further €7.5b to unchanged. We expect GDP to contract by just over 2% in 2013, support public sector finances. similar to the outturn in 2012, and then by a further 1.1% in 2014. Figure 18 Figure 19 Real GDP growth Government budget balance % year €b % of GDP 8 Forecast 0.8 Forecast 4 6 €b Cyprus 0.4 2 (left-hand side) 4 0.0 0 2 -0.4 -2 0 -0.8 -4 -2 Eurozone -1.2 % of GDP -6 -4 (right-hand side) -6 -1.6 -8 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Source: Oxford Economics Source: Oxford Economics Table 4 Cyprus (annual percentage changes unless specified) Source: Oxford Economics 2012 2013 2014 2015 2016 2017 GDP -2.3 -2.2 -1.1 0.8 2.5 3.0 Private consumption -2.7 -3.7 -2.6 -0.2 1.8 3.1 Fixed investment -24.2 -19.6 -12.5 -8.2 -1.7 3.5 Stockbuilding (% of GDP) -0.3 0.1 0.2 0.3 0.3 0.2 Government consumption -4.8 -4.6 -2.4 -0.5 1.0 2.2 Exports of goods and services 2.7 2.9 3.5 4.1 5.0 5.4 Imports of goods and services -7.9 -4.3 -1.3 0.9 3.2 5.6 Consumer prices 3.1 2.2 1.9 1.6 1.8 2.0 Unemployment rate (level) 12.1 15.5 16.1 16.3 16.0 15.1 Current account balance (% of GDP) -7.8 -4.4 -3.5 -3.5 -3.4 -3.2 Government budget (% of GDP) -4.9 -4.0 -3.4 -2.7 -1.5 -1.5 Government debt (% of GDP) 84.8 109.0 133.9 149.6 144.9 139.4 22 Ernst Young Eurozone Forecast Spring edition March 2013