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Belgium first in eurozone to enter formal recession

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Published 02 February 2012, updated 03 February 2012

Belgium became the first eurozone country formally to fall into recession in the second half of last year, data showed on Wednesday, paving the way for what is expected to be a tough contraction for the bloc as a whole in 2012.

Gross domestic product (GDP) in the eurozone's sixth largest economy shrank by 0.2% in the fourth quarter, following a quarterly contraction of 0.1% in the July-September period.

Two consecutive quarters of contraction is generally accepted by economists as the minimum for an economy to be considered in a recession.

The news comes on the heels of depressing data on Tuesday (31 January), which showed unemployment in the eurozone had reached 10.4% in December, casting a dark cloud over growth prospects only one day after EU leaders agreed to focus energy on generating jobs and growth.

Belgium is often cited as a harbinger of things to come in Europe and many countries in the region are already sliding towards recession, hit by the eurozone debt crisis and a wave of austerity required to cure it.

Final quarter figures for the eurozone, which grew by 0.2% in the third quarter, will be published on 15 February.

Germany, France, Italy and the Netherlands are also due to release their GDP estimates on that day. Spain said on Monday its economy had shrunk in the fourth quarter.

A Reuters poll earlier predicted that the eurozone as a whole will contract 0.3% in the coming year.

Economists said on Wednesday it had come as no surprise to see Belgium's recession confirmed. Indeed the 0.2% contraction was slightly better than some had expected.

Few also expect any improvement in the first three months of 2012, notably after the new Belgian government imposed austerity measures in December designed to save €11.3 billion.

Private households in particular are downbeat, the consumer sentiment index falling to a two-and-a-half year low in January.

"In order to sell the measures our politicians have had to talk a different language.... They have to say the situation is serious. Saying this makes people feel less comfortable," said Etienne De Callatay, economist at Bank Degroof.

Economists broadly expected growth in the second quarter, the rate dependent on the health of trade partners – Belgium is among the most open economies in the world.

"There could be some upward potential coming from outside," Steven Vanneste of BNP Paribas Fortis. "Financial tensions are easing so I think the worst of the economic crisis should be behind us. We see stabilisation right now but its still in a very fragile state."

Year-on-year on Belgium grew 0.9% in the fourth quarter for a 1.9% total growth in 2011.

EurActiv.com with Reuters
Background: 

After more than two years grappling with the debt crisis, EU leaders agreed on Monday (30 January) to focus their energy on trying to generate jobs and growth.

But most economists expect scant progress while the eurozone's high debtors are compelled to persist with harsh austerity programmes under a new fiscal compact.

Analysts dubbed the German-inspired pact for stricter budget discipline, agreed by 25 EU leaders on Monday, as a "compact for low growth", while one European diplomat has said that it "essentially makes Keynesianism illegal."

European Socialists, for their part, slammed the leader's growth and jobs pledge as "empty talk".

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