Slow economic growth in Europe may be here to stay and policymakers had better get used to it, a leading economic think tank said today.
The euro zone can probably grow at only a 1.2 to 1.8 per cent annual rate, roughly half the 2.5 per cent plus rate that most policymakers target, the Centre for European Policy Studies (CEPS) said in its annual economic report called Adjusting to Leaner Times.
This would worsen European budget deficits and make setting interest rates more difficult, the CEPS said.
"Policymakers should face up to this problem, and stop blaming an anonymous global business cycle" for poor growth, the report said.
The euro zone already is confronting its third straight year of weak growth with budget deficits rising to worrisome levels in Germany, France and Italy, its three largest economies.
Politicians scarred by rising unemployment are calling for lower interest rates and are cutting taxes to kick start their economies.
But the CEPS report said these actions may be for nought if growth is permanently lower and the structure of their economies - namely weak labour productivity and a stagnant labour pool as the population ages - strangle growth.