The eurozone economy contracted in the second quarter as the debt crisis pushed the 17-member currency bloc closer to recession, data released Tuesday showed.
The eurozone shrunk by 0.2 per cent in the three months to the end
of June, the European Union statistics office Eurostat said, amid
moves to cut high debt-and-deficit levels through a tough round of
fiscal austerity. The economy stagnated in the first quarter.
But economists warn that growth is likely to sink even further as
the year unfolds. "An end to the downturn is not in sight," said
Commerzbank economist Christoph Weil. "The third quarter is likely to
show an even bigger negative."
This will increase the pressure on Europe's top officials as they
consider the next key steps in dealing with the debt crisis, which
has now lurched into its third year.
The second-quarter contraction in gross domestic product (GDP) was
in line with analysts' forecasts. Eurozone GDP shrunk by 0.4 per cent
in the second quarter when compared with the same period last year,
Eurostat said.
Dragging the overall growth rate down were signs that recession
has taken hold in the nations at the centre of the long-running
eurozone crisis - Spain, Italy, Portugal, Ireland, Greece plus also
Cyprus.
In particular, the bleak economic numbers also serve to underscore
the battle facing the currency bloc as its member states attempt to
pay down debt at a time of faltering economic growth.
But the figures also underline the deepening economic divergence
across the eurozone with the data showing growth in the region's
biggest economy - Germany - defying the crisis to come in at a
better-than-expected 0.3 per cent during the second quarter.
This followed a pickup in both domestic German consumption and
exports as strong demand from nations outside the crisis-hit eurozone
hit the country's foreign orders.
Economists, however, believe the sharp downturn across the
eurozone and signs of slower global growth will catch up with Germany
later this year with the economy possibly stumbling into negative
territory in the third quarter.
Still, Germany is expected to avoid recession this year with the
nation's central bank, the Bundesbank, predicting an expansion rate
of 1 per cent. Meanwhile, the European Commission believes the
eurozone will shrink by 0.3-per-cent this year.
The region's second largest economy - France - was at a standstill
in the three months to end of June, Eurostat said.
Analysts had expected the German economy to slow to 0.2 per cent
in the three months to the end of June after it expanded by 0.5 per
cent in the first quarter. Growth in France had been forecast to
tumble into negative territory.
In the meantime, Tuesday's figures point to the debt crisis now
starting to hit key northern eurozone states with the economies in
both Belgium and Finland contracting during the second quarter.
ING Bank economist Martin van Vliet said he expects growth in the
eurozone to resume in the fourth quarter. But he warned: "Any
recovery will likely remain sluggish and fragile. There are a lot of
things that could go wrong on the crisis resolution front that could
derail the envisaged recovery."
The release of the GDP data came as the second-quarter corporate
reporting season came to an end with leading companies from the
region also warning of a weak business outlook in the coming six
months.
As a further sign of the eurozone's grim outlook, Eurostat said in
a separate release that industrial production fell by a
more-than-forecast 0.6 per cent in June. This almost cancelled out
the 0.9-per-cent gain in May.
The Eurostat gross domestic product figures also showed the
27-member EU economy shrinking by 0.2 per cent in the second quarter.
Compared with the same quarter in 2011, economic growth in the EU
slumped by 0.2 per cent.
