Looking at Western Europe, the recovery we projected last October for the euro area has solidified. This is reflected in our revised forecast - for example, the 2014 forecast for the euro area is up from one per cent last October to 1.2 per cent now, with substantial upgrades for countries such as Spain. These revisions reflect the stronger data flow on the back of past policy actions, the revival of investor confidence, and the waning drag from fiscal consolidation.
The positive impact on programme countries is also palpable. There are improving economies, lower spreads, and evidence of market access. We have also seen a welcome pickup outside the euro zone. For example, growth in the UK is picking up strongly with almost 3 per cent expected for this year.
While stronger growth prospects and market sentiment are welcome, there is still much to do to solidify and boost the recovery, which remains rather weak. And unemployment is still unacceptably high in too many places. The headwinds in the euro area are many. We have previously emphasised the role of debt overhangs in firms and households, of fragmented financial markets, and of policy uncertainty. Action is being taken to address all these areas both at the country and pan-European level, with steps to banking union--for instance, a single supervisor, the asset quality review, and the stress tests are especially important to ensure adequacy of capital and market confidence.
More recently, we have emphasised the role of what we call "lowflation," i.e., of a large and persistent undershoot relative to the ECB's medium-term price stability objective of below but close to 2 per cent inflation. I would also emphasise the role of structural reforms in reviving long-term growth which has taken a hit from several years of underinvestment and unemployment.
The unemployment rate in a number of places in Europe is unacceptably high. I think the issue has been first stabilising the economies. Given the high level of debt and given that Portugal and others had lost market access, it was necessary to have a fiscal adjustment programme that would bring debt under control. And to some extent, that has been done. Portugal planned a degree of fiscal adjustment, most of which has already been done. Two-thirds of it has already been put in place.
In terms of unemployment, the focus of the programme has been to put conditions in place in product and labour markets, not just in Portugal but across the eurozone countries, through reforms in these areas and structural reforms in general in order to increase the potential growth of the economy. Some of those are yielding results. Now, obviously, the situation is difficult and is likely to continue to be difficult, but the starting point was extremely difficult, I would say critical. Some of these economies did lose market access, and the adjustment was necessary to bring the economies back to health.
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