Debt crisis may weigh on growth

Despite measures to contain it, the Greek debt crisis has caused uncertainty which threatens to dampen eurozone growth in the second half of 2011, according to our Economics team’s latest report.

European policymakers are working to control the sovereign debt crisis but now even Italy has had to join Greece in putting through a new austerity budget. Ireland, Portugal and Spain may follow suit.

Our report shows the economies of Germany, France and the Netherlands all expanded strongly in the first quarter of 2011, and we expect these figures will help the eurozone grow by 2% this year. Our team says the greatest risk now is that government cuts will dampen demand, dragging on growth in the second half of the year.  

Yael Selfin, Head of Macro Consulting, sees exports as a key path for growth over the medium-term.  

She said: “People are dealing with squeezed disposable incomes and rising interest rates, so domestic demand is likely to stay subdued and export growth will be crucial for economic performance.”

The team expects Ireland to make a swifter return to health than the rest of the ’debt crisis’ economies. Our analysis shows that exports make up 100% of Irish GDP while in Greece, Portugal and Spain they only make up one third.

We expect eurozone economic growth to moderate slightly to 1.7% in 2012 when continued government cuts will weigh down on demand and it will be impossible to avoid further interest rate rises.

Please get in touch to find out more, or see our report online.