Unlocking the Eurozone’s Potential

Are the Eurozone's economic prospects improving, or is it another false dawn? The key factor to watch is the unemployment rate: if it rises again, it could signal a relapse but a continued decline will offer new opportunities for Europe to embrace change more vigorously.

A marked drop in the unemployment rate would significantly boost Eurozone consumer confidence and hence spending, currently at only two-thirds of the US level, while savings are much higher. More consumer spending is a necessary condition for Eurozone recovery.

A drop in unemployment would also shift the accent onto productivity gains, and wage pressures should start to promote this trend in the private sector, drawing employees in to higher value added firms.

Encouraging a trend towards more job switching to higher value added sectors and companies could boost productivity by perhaps 10-20% over the next decade, with growth at higher rates of around 2% or more over the medium to long run.

Productivity growth at the macro level is driven by improvements in the structure of the economy as well as by individuals working harder. A better quality environment and more prosperous companies will help boost the quality of the workforce and the chances of the Eurozone sustaining productivity and GDP growth over the longer run.