Eurozone jobless rate to hit 12.7%

The eurozone unemployment rate will peak at 12.7% at the start of 2014 as the economy contracts by 0.6% this year before making a marginal recovery next year, according to the latest Ernst & Young summer economic forecast.

The bleak outlook for the region is predicated on the negative impact from a weaker international environment which will depress exports. Higher unemployment will dampen growth.

The consultancy firm predicts the eurozone economy will make a slight rebound in 2014 to 0.9% before posting an average growth rate of 1.5% between 2015 to 2017.

Ernst & Young noted the change in policy stance from among eurozone member states from fiscal austerity to a more accommodative stance by delaying fiscal consolidation, which had the potential to raise GDP by 1% in 2014 with Greece and Spain benefiting most.

Marie Diron, senior economic adviser to & Ernst & Young said: “In the short term there appears to be very little that can help to improve growth across the eurozone.

“The structural reforms that are being implemented particularly across the periphery could take some time to have an impact on GDP.

“On the positive side, the relaxation of fiscal austerity means that measures that would have otherwise been implemented that could have potentially harmed growth have been avoided. But fiscal policy will remain restrictive,” Ms Diron said.

“However, the ECB can do more by easing monetary policy targeted at SMEs.

“The risks of attempting further support are far less than not doing anything at all.”

She added that more could be done to introduce bank reforms that wouldenable cheaper lending to SMEs.

“Easing collateral rules in the banks’ liquidity operations would enable banks to fund their lending to SMEs more cheaply.

“Although an early move to lift credit to SMEs seems unlikely, the potential is significant.

“The forecast predicts, if half the credit tightening that has happened since 2008 were reversed within two years, eurozone GDP would increase by €65b, or 0.7% and unemployment would be almost 500,000 lower by 2017,” she said.

As it stands, an extra 500,000 are likely to join the dole queue over the next number of monthsto bring the total unemployment rate to 20.5m.

Youth unemployment across the eurozone is also particularly high at 24%.

In Greece and Spain unemployment has reached alarmingly high levels at 59% and 56%.

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