Five obstacles eurozone economy faces

Five obstacles eurozone economy faces

13 May 2015, 17:03

Euro area's economic growth has picked up in the first quarter, outpacing the United States and the United Kingdom for the first time in four years. Although 2015 seems to mark the year of a recovery from the global financial crisis and debt and banking crises which followed, the Wall Street Journal sheds light on five things signaling the medium-term estimate is not that bright.

1 Government debts are high

Government debts continue to rise and stand at record highs, despite five years of austerity in many parts of the eurozone. The private sector has had similar problems reducing its borrowings and six of the 10 most indebted countries in the world are in the eurozone.

2 Unemployment is high

“Unemployment looks set to remain intolerably high for a long time,” said the European Commission when raising its growth projections in its spring forecasts. The pickup in growth is leading to the creation of some new jobs, but directed to improve the flexibility of the labor market and cut joblessness over the longer-term have the immediate effect of increasing layoffs, as Italy demonstrates.

3 Capacity is diminished

Investment by businesses and governments has been poor in the recent years. This has left the eurozone with old equipment and crumbling infrastructure, an impediment to its ability to grow rapidly in coming years. The launch of an Investment Plan for Europe has been an official response to the problem. Policy makers hope it will stimulate businesses as well as addressing some of the infrastructure problems.

Even if it works, however, that will take time to raise the economy’s speed limit.

4 Aging workforce

The short-term challenges in the euro zone may be finding jobs for unemployed workers, but longer term it is likely to be finding workers for unfilled jobs. As birth rates arefalling, particularly in Germany, the eurozone’s working age population is declining.

5 Political challenges

The impasse Greece and its international creditors are currently in may yet end in a damaging default by the government, and even worse, the country’s exit from the euro area. Europe’s frayed relations with Russia, including reciprocal economic sanctions, will also hinder trade, while developments in north Africa and the Middle East are hardly favorable.
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