Eurozone growth likely to ‘slow to a crawl’ over the next 10 years, experts warn

CNBC reports that growth in the euro zone is likely to be very sluggish over the next decade, experts have warned, and the forecasts were bleak even before the new coronavirus hit the region.

"Even before the coronavirus outbreak, dark clouds had been gathering over the euro zone economy, with Italy in the eye of the storm," economists at ING warned.

"Over the next 10 years, the region's potential growth rate will likely slow to a crawl while Italy faces a stagnation far worse than anything Japan has seen," ING's Carsten Brzeski, Bert Colijn and Inga Fechner said in a note.

In the fourth quarter of 2019 euro zone growth was just 0.1% quarter-on-quarter, marking its slowest growth rate since 2013.

Looking ahead, economists fear that the region is looking at a decade of meager growth expectations at best. "In the next 10 years, demographic and structural headwinds, and a limited appetite for reform, could push the bloc's potential growth rate to less than 1%, down from the annual average pace of 1.4% of the previous decade," ING's economists said.

In the fall, the European Commission had forecast 1.2% growth for the euro zone in 2020 and 2021, and 1.4% for the entire European Union (excluding the U.K.).

But now the outbreak of the flu-like virus is certain to dent growth forecasts in the region in the short term, economists say, and will force the European Central Bank (ECB) to act.

"We suspect that the (ECB's) forecast for (euro zone) GDP growth in 2020 will be reduced from 1.1% to around 0.8%, with the projections for Germany and Italy likely to be cut particularly sharply. Forecasts for 2021 may also be reduced," he added.

Capital Economics had forecast sluggish growth for the euro zone anyway in 2020, but has downgraded these. "Even before the coronavirus hit, we were expecting GDP growth of only 0.7% in the euro zone this year. We have already revised this down to 0.5%."