The Eurozone faces the prospect of sliding into a long period of low growth and inflation – namely “Japanification”, Deutsche Bank Wealth Management's Chief Investment Office writes in a new report.
“With current central bank policies expected to continue, albeit with some revision in 2020, the Eurozone broadly reflects what Japan has experienced for several decades since the beginning of the 1990s,” writes Markus Mueller, Head of the Chief Investment Office.
The CIO Special, entitled “Caught in a low-growth eternity?”, questions whether the Eurozone can withstand the trend and overcome its structural barriers.
It finds some cause for optimism as the region has had fewer identifiable periods of crisis than Japan and has been able to avoid outright deflation. Furthermore, the Eurozone’s GDP growth is higher than in Japan and its economy may be more resilient due to sector diversification, supported by labour flexibility and domestic consumption.
“Economic flexibility, structural reforms and innovation are key to the Eurozone avoiding a ‘Japanification’ process,” Mueller writes. “Further integration must be used as an opportunity to strengthen economic flexibility so that the region grows and remains competitive.”