I expect Eurozone's growth to stagnate this year, in contradiction with consensus views.
Latest IMF projections in its World Economic Outlook are for global economic growth to rise from 3.0% in 2013 to 3.6% in 2014. This increase is expected to be led by developed countries, primarily euro area. Euro Area itself is projected to grow at 1.2% in 2014, up from -0.5% in 2013, with the key drivers being reduced fiscal tightening and rise in net exports.
Consensus view is also for euro area growth to pick up pace and increase over 2014-15. Additional reasons for the optimistic view are mainly given as increasing PMIs, improving Current account balances and stabilizing growth in general.
However, I am struggling to get convinced about Eurozone being on a sustainable growth path (assuming Eurozone being the growth engine for Euro area). In all likelihood Europe is entering the league of US and Japan – countries with sluggish growth sustained by quantitative easing, and low inflation.
Latest IMF projections in its World Economic Outlook are for global economic growth to rise from 3.0% in 2013 to 3.6% in 2014. This increase is expected to be led by developed countries, primarily euro area. Euro Area itself is projected to grow at 1.2% in 2014, up from -0.5% in 2013, with the key drivers being reduced fiscal tightening and rise in net exports.
Consensus view is also for euro area growth to pick up pace and increase over 2014-15. Additional reasons for the optimistic view are mainly given as increasing PMIs, improving Current account balances and stabilizing growth in general.
However, I am struggling to get convinced about Eurozone being on a sustainable growth path (assuming Eurozone being the growth engine for Euro area). In all likelihood Europe is entering the league of US and Japan – countries with sluggish growth sustained by quantitative easing, and low inflation.
Eurozone’s economy is now more dependent on exports for its growth than prior to 2012 crisis. Dependence on exports implies that it depends on consumption growth in US & China (its two main export destinations) for its own growth. With China expected to grow slower this year and US domestic demand staying sluggish, Eurozone’s exports will struggle to pick up pace.
Current extremely low inflation numbers show that domestic demand growth in most of the world, particularly Europe is weak. Then, that cannot be a driver of sustainable Europe growth. Moreover, demographic trends also support the argument that Europe is unlikely to experience a domestic demand led recovery.
Then, Europe lacks clear growth drivers to take it to sustainable growth path. I expect European growth to stagnate in 2014, due to lack of credible drivers. Given that, investors need to be careful while investing in Europe.
What are your expectations of Eurozone’s growth this year?
Current extremely low inflation numbers show that domestic demand growth in most of the world, particularly Europe is weak. Then, that cannot be a driver of sustainable Europe growth. Moreover, demographic trends also support the argument that Europe is unlikely to experience a domestic demand led recovery.
Then, Europe lacks clear growth drivers to take it to sustainable growth path. I expect European growth to stagnate in 2014, due to lack of credible drivers. Given that, investors need to be careful while investing in Europe.
What are your expectations of Eurozone’s growth this year?
