In addition to further fiscal consolidation, the debt ceiling debates, and the impact of rising long-term Treasury yields and mortgage interest rates in response to expectations of a tapering in asset purchases by the US Federal Reserve, also pose downside risks. Peripheral Eurozone remains mired in recession.
Consequently, the euro zone contracted by 1.1% year-on-year in the first quarter of 2013, following a contraction of 0.8% in the final quarter of 2012. The IMF has reduced its forecast for Eurozone growth in 2013, by 0.2 percentage points to –0.6%, with a weaker recovery than previously forecast in 2014.