Eurozone economy falls deeper into recession

The eurozone slipped deeper into recession in the last three months of 2012 after its largest economies, Germany and France, shrank markedly at the end of the year. It marked the currency bloc's first full year in which no quarter produced growth, extending back to 1995.

Economic output in the 17-country region fell by 0.6% in the fourth quarter, the EU's statistics office Eurostat said on Thursday (14 February), following a 0.1% drop in output in the third quarter.

The drop was the steepest since the first quarter of 2009 and more severe than the average forecast of a 0.4% drop in a Reuters poll of 61 economists.

For the year as a whole, gross domestic product (GDP) fell by 0.5%.

Within the zone, only Estonia and Slovakia grew in the last quarter of the year, although there are no figures available yet for Ireland, Greece, Luxembourg, Malta and Slovenia.

The big economies set the tone.

Germany contracted by 0.6% on the quarter, official data showed, marking its worst performance since the global financial crisis was raging in 2009.

France's 0.3% fall was also slightly worse than expectations.

Worryingly for Berlin, it was export performance – the motor of its economy – that did most of the damage although economists expect it to bounce back quickly.

"In the final quarter of 2012 exports of goods declined significantly more than imports of goods," the German Statistics Office said in a statement.

Revisions to the French figures showed its output fell by 0.1% in each of the first and second quarters of 2012, meaning the country has already experienced one bout of recession in the last twelve months.

While the European Central Bank's pledge to do whatever it takes to save the euro has taken the heat out of the bloc's debt crisis, even its stronger members are gripped by an economic malaise that could push debt-cutting drives off track.

French Prime Minister Jean-Marc Assault acknowledged for the first time on Wednesday that weak growth was putting his government's deficit goal for 2013 out of reach.

Economists say the eurozone may also shrink in the first quarter of 2013 although more resilient Germany is expected to rebound.

"The chances that the [German] economy will return to growth at the beginning of this year are very good. The early indicators are all pointing upwards," said Andrea Reese, chief German economist at UniCredit.

"The question is how strong the first quarter will be. We expect growth of 0.3% but it could be more."

Dutch GDP dropped 0.2% over the quarter, keeping it in recession, while the Austrian economy shrank at the same rate.

Toubled periphery

For the more embattled members of the currency bloc, matters are of course worse.

Italy suffered its sixth successive quarterly fall in GDP – this time by a sharp 0.9% – putting it into a longer slump than it suffered in 2008/2009.

Its recession has been deepened by austerity measures that outgoing Prime Minister Mario Monti introduced to stave off a debt crisis.

With an election due on 24-25 February, all sides in a three-way race between Monti's centrist bloc, Pier Luigi Berman's centre-left coalition and Silvio Berlusconi's centre-right are pledging to cut taxes to try to kicks tart economic growth.

Spain, the eurozone's fourth largest economy, released figures two weeks ago which showed it remained deep in recession after a 0.7% contraction in the fourth quarter.


The eurozone crisis has pushed Europe deeper into recession, which is now slowing the global economy. G7 economies were expected to grow at an annualised rate of just 0.3% in the third quarter of 2012 and 1.1% in the fourth, the Paris-based OECD said in September.

After five years of economic crisis and the return of a recession in 2012, unemployment is hitting peaks not seen for almost 20 years earlier this year.

>> Read: Unemployment hits peak 'not seen in 20 years'