Europe News

'Dire' consequences loom for jobless Europe

While there are reasons for "cautious optimism" as the euro zone shows signs of economic recovery, high unemployment in the region will fall by just one percentage point in the next four years and in some areas it will spike before dipping, a new study finds.

Stubbornly high unemployment rates not only pose a real threat to the recovery, as consumer demand will remain subdued, but young people are also at risk of spending less time in employment, creating potentially "dire" consequences for businesses.

Public sector employees shout slogans during a demonstration against layoffs in Athens

Unemployment in the euro zone is currently sitting close to a record high of 12 percent, and is forecast to fall at a very slow rate over the next two years before reaching 11 percent by 2018, according to the spring EY Eurozone Forecast (EEF).

Figures from European Union's statistics agency show approximately 19.175 million are without a job across the euro zone and in Greece, unemployment is set to climb to 28 percent this year before it falls by 3 percent in 2018.

(Read more: Euro zone inflation tops forecasts, unemployment stuck at 12%)

Youth unemployment in both Greece and Spain have reached a staggering 50 percent, presenting "major concerns" in terms of social tensions, education and labor mobility, the EEF said.

"In countries such as Spain, where half of young people remain out of work, with little prospect of a job, the risk of a "lost generation" is very real," the report found.

"This waste of human capital, alongside a lack of fixed capital investment, means that productive capacity is lost over time and sustainable growth becomes more difficult. The consequences for businesses could be dire."

(Read more: European car sales up 7.6% in sixth monthly rise)

Within the 18 member states, unemployment differs "wildly", with Austria set for a jobless rate of 4.6 percent in 2014-18, unemployment in Greece is still projected to be close to 25 percent in 2018.

Young people who spend significant period of time out of work tend to spend less time in employment and on average earn lower wages over the rest of their lives according to the study.

EY Managing Partner for EU Institutions, Alessandro Cenderello said it is crucial to foster a "culture of entrepreneurship"

(Read more: German court says euro zone's crisis fund is legal)

"Governments should promote entrepreneurs as job creators, spread the view that entrepreneurs provide innovative products that benefit the wider society, and encourage schools to include entrepreneurship on the curriculum," he said.

By CNBC's Jenny Cosgrave: Follow her on Twitter @jenny_cosgrave

Correction: This story has been corrected to reflect unemployment is set to fall by one percentage point in the next four years.