Euro Zone Misery to Last for Decade: Ernst & Young

The fallout from the euro zone debt crisis will continue to hurt the region for the next decade, accountants Ernst & Young have warned.

European Union flags in front of European Commission headquarter in Brussels, Belgium.
Rachele Rossi | Flickr | Getty Images
European Union flags in front of European Commission headquarter in Brussels, Belgium.

Economic growth will be even slower than expected next year as the euro zone struggles to recover from its debt crisis, according to E&Y, which cut its forecast for gross domestic product (GDP) growth in the region to just 0.1 percent in 2013, from previous expectations of 0.4 percent growth. The company maintained its forecast for a contraction of 0.5 percent in the single currency area this year.

Its economists called for more decisive action from those steering the euro zone through the crisis.

(Read More: Is Euro Zone Bailout Big Enough?)

Policymakers in the euro zone have proposed a range of measures including, most recently, a new bond-buying program known as Outright Monetary Transactions (OMTs) from the European Central Bank (ECB), which, it is hoped, will help control the cost of debt for struggling euro zone countries.

(Read More: Where Bad Bonds Go to Die)

Spain, widely tipped as the next euro zone country to ask for a full bailout, has seen the cost of its debt shoot up again this week after protests.

(Read More: Spanish Protests).

Wednesday’s protests on the streets of Athens showed how some in the region are struggling to cope with the effects of austerity.

(Read More:Greek Protests)

“The recent so-called bazooka provided by the ECB, in the form of a bond purchase program, will only serve as a temporary ‘sticking plaster’ for the Eurozone, albeit an essential one. We believe a more radical approach will be necessary over the coming months to ensure even the weakest of recoveries next year and in the future,” Marie Diron, senior economic adviser to the E&Y Eurozone Forecast, said.

She called for a full program of quantitative easing by the ECB, such as the one favored by the U.S. Federal Reserve, which earlier this month embarked on its third round of aggressive asset purchases to boost economic growth.

The outlook for unemployment, consumer spending and business investment in the euro zone remains bleak, according to E&Y.

Unemployment in the euro zone will peak at 19.2 million or just over 12 percent of the region’s population in the first quarter of 2014, with the jobless rate hitting 26 percent and 27 percent of the workforce in Greece and Spain respectively. Both countries are already struggling with rising unemployment, with the picture for youth joblessness particularly grim.

The level of investment by businesses is expected to still be below its pre-crisis peak at the end of 2016, despite record lows in interest rates and the recapitalization of many of Europe’s biggest companies, according to E&Y.

“As economic uncertainty continues to prevail across the euro zone it is essential for business that policymakers continue the momentum and act decisively. The economy cannot afford corporates tightening their belts just when consumers are turning off the spending tap,” Mark Otty, Ernst & Young Area Managing Partner for Europe, Middle East, India and Africa, said.