News Column

Eurozone Lurches Back Into Recession in Q3

November 15, 2012

Andrew McCathie


The eurozone lurched back into recession during the third quarter of the year, data released Thursday showed, amid warnings that the downward spiral in the crisis-hit currency economy could deepen in the coming months.

The 17-member eurozone's economy shrunk by 0.1 per cent in the three months to the end of the September, the European Union's statistics office Eurostat said. Analysts had expected a Q3 fall of 0.2 per cent.

The latest quarter-on-quarter fall in gross domestic product (GDP) follows a 0.2-per cent drop in the second quarter. Economists define a recession as two consecutive quarters of negative growth.

But economists warned that the region could slide deeper into recession in the coming months as governments press on with a tough round of fiscal austerity aimed at slashing high debt-and-deficit levels.

"In our forecasts, the fourth quarter is likely to witness a renewed intensification of the recession," said Marco Valli, chief eurozone economist with Italy's Unicredit bank.

Valli expects the currency bloc's economy to shrink by 0.4 per cent quarter on quarter in the final three months of the year.

Year-on-year, GDP fell by 0.6 per cent, Eurostat said . This followed a year-on-year slump of 0.4 per cent in the second quarter.

The eurozone only emerged from its last recession in 2009 with a slew of recent data and indicators pointing to a growing sense of gloom amid the region amid rising unemployment and falling industrial production.

The new GDP figures came in the wake of a wave of protests across the currency bloc Wednesday with demonstrators calling on governments to end the budget cuts and to kick start their economies.

Releasing the data, Eurostat said the broader 27-member EU had escaped recession, with the region's economy chalking up an anaemic 0.1 per cent third-quarter growth rate after shrinking by 0.2 per cent in Q2.

The slight pick up in EU growth was helped by 1-per-cent gain in Britain's growth rate following the economic benefits to the country resulting from mounting the Olympic Games.

Underlying the fragile state of the eurozone economy, Eurostat also released figures showing inflationary pressures easing in the common currency economy - an additional sign of weak economic activity.

Annual inflation in the region edged down to 2.5 per cent in October, from 2.6 per cent in September.

Helping to push the eurozone back into recession was another sharp contraction in the economies at the centre of the eurozone debt crisis.

On Wednesday, for instance, figures released in Athens showed the economy of cash-strapped Greece shrinking by 7.2 per cent compared with the third quarter of 2011, with the nation entering its sixth year of recession.

Spanish GDP retreated by 0.3 per cent.

But the release of the latest eurozone GDP data also shows the fallout from the debt crisis gripping the so-called periphery states in southern Europe reaching the region's strongest economies in the north.

"The periphery nations are continuing to drag the stronger core economies in behind them," said Commerzbank economist Christoph Weil.

The region's biggest economy, Germany, slowed in the third quarter to post a 0.2-per cent growth rate, while GDP in neighbouring Netherlands slumped by a more-than-forecast 1.1 per cent from the previous three months.

However, France, the eurozone's second biggest economy, reported a surprise 0.2-per-cent expansion rate. Analysts had forecast growth to be flat in the country in the three months to the end of September.

The Italian economy also turned in a slightly better-than-forecast performance, with the eurozone's third-biggest economy contracting by 0.2 per cent.

Economists had expected the Italian statistics office to say the nation's economy had shrunk by 0.5 per cent.

Still, the third-quarter slump in Italy means that the nation has reported negative growth for five straight quarters.

For the EU as a whole, GDP expanded by 0.4 per cent in the third quarter year-on-year, after contracting by 0.3 per cent in the second quarter.

Source: Copyright 2012 dpa Deutsche Presse-Agentur GmbH

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