Eurozone forecast to grow by 1.3% this year and 1.6% next year

The eurozone will grow by 1.3% this year and 1.6% next year, according to the Euroframe Indicator.

In a marginally improved outlook for the region, the unemployment rate is expected to fall to 12% this year and 11.3% next year. The fiscal deficit for the region is projected to come in at -2.4% in 2014 and -1.6 next year.

But there are still huge disparities in the region, with many member states in the south facing major challenges as they attempt to restore fiscal rectitude.

The Euroframe indicator is put together by the ESRI and research institutes from nine other EU countries.

The 2014 winter economic assessment of the eurozone noted hard data such as retail sales, industrial production, and new orders received, have until very recently, not embarked on a clear upward trend.

However, industrial production accelerated sharply in November.

The ECB’s outright monetary transaction programme — which pledges the unlimited purchases of short-term debt for any member state that gets into difficulty in return for implementing structural reforms — has helped stabilise financial markets across the region.

Moreover, there has been an easing up in austerity which has eased the fiscal drag on growth. This, combined with a monetary stimulus and a much more benign external environment, has improved the overall outlook for the eurozone.

The assessment found: “Exports are projected to accelerate markedly and external trade is forecast to continue to contribute significantly to economic growth. Domestic demand is expected to gradually improve with investment being the main driver on the back of improving sentiment and low interest rates.”

“Private consumption on the other hand will remain sluggish as real personal disposable income growth should remain slow. Given the large amount of economic slack in the euro area on aggregate, consumer price inflation is expected to remain low in 2014 at 1.2% before rising to 2% next year as the economy rebounds.”

The Euroframe Group comprises 10 economic forecasting and research institutes including the Kiel Institute for the World Economy in Germany, and the National Institute of Economic and Social Research in Britain.