Weak Economic Outlook for Eurozone

The Eurozone crisis continues to make the headlines in 2013 with reports for the first Quarter showing that the Eurozone economy contracted by 0.6%. Of greater concern is the fact that the major economies of France and Germany are showing signs of struggling. Last month Cyprus became the latest Eurozone member to require a €23 billion bailout of its banks. News that savers would lose deposits over €100,000 came as a shock to the rest of the world and is a sign that the European Central Bank (“ECB”) will no longer bailout the failing banks of its member's. It also raises the prospect of whether a similar levy might be employed by other Eurozone nations. This combined with record unemployment in Spain and Greece offers a bleak outlook for the Eurozone. This will undoubtedly have repercussions to the global economy. Even China is beginning to feel the effects, having reported a slowdown in economic growth.

The ECB’s recent announcement that it will reduce interest rates in the Eurozone comes in response to the poor growth figures announced last quarter. However, this measure is likely to prolong the problem rather than resolving the issue of poor growth in the economy. Low interest rates will continue to punish savers and investors who are finding it increasingly difficult to generate a reasonable return on their assets. Equities are seen as the most viable option available to investors at present who are willing to take on more risk in order to pursue the required returns on their investment. Given the reluctance of the major Western Economies to tackle the issue of rising government debt it is unlikely that we will see interest rates rising in the UK, US or Europe any time soon. In fact the governments appear willing to employ monetary easing measures (ie money printing) to prop up their ailing economies until inflation forces their hand.

Whilst the economic outlook for the Eurozone is gloomy, this could represent an opportunity for entrepreneurs and small businesses. Investors and venture capital firms are increasingly looking to invest in small businesses as part of their portfolios. London has seen a significant rise in the number of angel investors looking to invest in quality businesses. The Seed Enterprise Investment Scheme (SEIS) launched by the government provides added incentive to angel investors in the form of a 50% tax break for individuals investing in qualifying businesses. The current economic climate offers considerable opportunities if you are a small business owner looking to raise finance. Similarly, individuals and contractors with spare cash could benefit from investing in small start up businesses. For more information, please feel free to contact us at info@belsizeaccountancy.co.uk.