Eurozone will ‘muddle through’, say economists

6 Mar 12
The eurozone is still marginally more likely than not to ‘muddle through’ its current crisis, but if the currency does falter it will send shockwaves around the world, according to an economic consultancy

Nick Mann | 23 January 2012

 

The eurozone is still marginally more likely than not to ‘muddle through’ its current crisis, but if the currency does falter it will send shockwaves around the world, according to an economic consultancy.

 

In its Business Outlook for the quarter ending December 2011, Australian-based Deloitte Access Economics says funding to banks from the European Central Bank and ‘sticky tape’ holding the euro together were ing to ‘keep the market wolf from the sovereign debt door’. But it warns that if the eurozone does ‘blow’ and banks go bust, the impact will be felt worldwide. In particular, Australia’s economy, which is otherwise forecast to experience better-than-expected growth, would suffer.

 

Chris Richardson, a partner at Deloitte Access Economics, said: ‘If the world muddles through this crisis, then Australia will grow faster than many think it will.’

 

Growth would be underpinned by increased output in the construction and coal sectors, he said, allied to cuts in interest rates and ‘better news’ in retail and home building.

 

 ‘If, however, Europe “blows”, then Australia’s outlook tanks. Resource sector construction would still surge, leaving us among the fastest growing economies in the world, but that would be little consolation.’

 

This would lead to a reduction in commodity prices – and therefore national income – as well as spending cuts by Australian firms and families and a credit crunch brought on by the failure of European bank failures.

 

The economists’ assessment came as European Union finance ministers prepared to meet today to discuss the economic situation in the worst affected countries.

 

Among the items on the agenda at the meeting of the ‘Eurogroup’ is Greece’s adjustment programme as the country seeks to restructure its debt. Over the weekend, Greece’s private creditors met the country’s leaders to discuss the issue.

 

Progress on efforts to stabilise the finances of other ‘vulnerable’ member states, including Spain, Italy and Ireland, is also likely to be considered.

 

Did you enjoy this article?

Related articles

Have your say

Newsletter

CIPFA latest

Popular

Most commented

Events & webinars