Eurozone economy shrinks in second quarter
by Daniel Mason
14 August 2012
The eurozone and wider European Union economies shrank by 0.2 per cent between April and June compared with the first quarter, according to an estimate published by the EU's statistics office Eurostat. It follows growth of zero per cent in both the 17-nation eurozone and the 27 countries of the EU in the first three months of the year.
While neither region is in technical recession, defined by two successive quarters of negative growth, the situation has worsened as the debt crisis continues. On an annual basis compared with the same period last year, the eurozone economy has shrunk 0.4 per cent and the EU economy by 0.2 per cent, Eurostat said.
Among the eurozone core's strongest economies, Germany performed slightly better than widely forecast, posting growth of 0.3 per cent in the second quarter – though even that marked a slowdown compared with an expansion of 0.5 per cent in the previous three months. France also did better than expected by avoiding a contraction, its economy stagnating for the third quarter in a row.
Another eurozone country to do beat the forecasts was Slovakia, which managed relatively strong growth of 0.7 per cent. Both the Dutch and Austrian economies expanded by 0.2 per cent. But Finland's gross domestic product shrank 1 per cent quarter-on-quarter, and Belgium's contracted by 0.6 per cent. Cyprus, Portugal, Spain and Italy remained mired in recession, with Portugal's quarter two decline of 1.2 per cent notably severe.
Outside the eurozone, Hungary slipped into recession, posting a contraction of 0.2 per cent in the second quarter on top of a 0.7 per cent decline in the first three months of the year. It joined the United Kingdom, which has endured three successive quarters of negative growth.
Yesterday, Greece's statistical authority said the country's economy had contracted by 6.2 per cent in the second quarter compared with the same period a year ago – extending its five-year recession and again highlighting the disparity in performance across the eurozone. It came after the coalition government in Athens announced €11.5bn of new spending cuts earlier this month, in a bid to meets the targets set by international lenders and qualify for the next €31.5bn installment of bail-out loans.
The relative strength of the likes of Germany was "more than offset by sharp falls in activity in southern and peripheral economies", said Jonathan Loynes, chief European economist at Capital Economics. "The big picture is that the economic growth required to bring the region's debt crisis to an end is still nowhere in sight."
Howard Archer, chief European economist at IHS Global Insight, said: "Ongoing largely weak data and survey indicate that the eurozone is headed for a further GDP drop in the third quarter as it struggles against tight fiscal policy in many countries, high and rising unemployment, muted global economic activity and ongoing serious sovereign debt tensions that weigh down on confidence and limit investment.
"Consequently even if lower inflation and some limited temporary easing of sovereign debt tensions allows eurozone economic activity to stabilise in the fourth quarter, GDP is still likely to contract by 0.5 per cent overall in 2012. Meanwhile, the contraction in eurozone GDP in the second quarter reinforces our belief that the European Central Bank will trim interest rates from 0.75 per cent to 0.5 per cent within the next couple of months."
Eurostat also said today that between May and June, industrial production fell 0.6 per cent in the eurozone and 0.9 per cent in the EU as a whole. On a year-on-year basis the decline was still more marked, with industrial production down 2.1 per cent in the eurozone and 2.2 per cent in the EU.
London's Centre for Economics and Business Research today downgraded its forecast for global growth this year from 2.8 per cent to 2.6 per cent. And it predicted growth of 2.7 per cent in 2013, down from an earlier estimate of 3.2 per cent. The think-tank also warned in a statement that the "outlook could well be worse than this".
Its senior economist Tim Ohlenburg said: "Both 2012 and 2013 look like difficult years for the world economy, but growth should be in moderately positive territory as long as risk factors remain just that. However, extensive conflict between Israel and Iran, a eurozone implosion or a slump in China all have the potential to turn a couple of slow years into a renewed global recession."
While neither region is in technical recession, defined by two successive quarters of negative growth, the situation has worsened as the debt crisis continues. On an annual basis compared with the same period last year, the eurozone economy has shrunk 0.4 per cent and the EU economy by 0.2 per cent, Eurostat said.
Among the eurozone core's strongest economies, Germany performed slightly better than widely forecast, posting growth of 0.3 per cent in the second quarter – though even that marked a slowdown compared with an expansion of 0.5 per cent in the previous three months. France also did better than expected by avoiding a contraction, its economy stagnating for the third quarter in a row.
Another eurozone country to do beat the forecasts was Slovakia, which managed relatively strong growth of 0.7 per cent. Both the Dutch and Austrian economies expanded by 0.2 per cent. But Finland's gross domestic product shrank 1 per cent quarter-on-quarter, and Belgium's contracted by 0.6 per cent. Cyprus, Portugal, Spain and Italy remained mired in recession, with Portugal's quarter two decline of 1.2 per cent notably severe.
Outside the eurozone, Hungary slipped into recession, posting a contraction of 0.2 per cent in the second quarter on top of a 0.7 per cent decline in the first three months of the year. It joined the United Kingdom, which has endured three successive quarters of negative growth.
Yesterday, Greece's statistical authority said the country's economy had contracted by 6.2 per cent in the second quarter compared with the same period a year ago – extending its five-year recession and again highlighting the disparity in performance across the eurozone. It came after the coalition government in Athens announced €11.5bn of new spending cuts earlier this month, in a bid to meets the targets set by international lenders and qualify for the next €31.5bn installment of bail-out loans.
The relative strength of the likes of Germany was "more than offset by sharp falls in activity in southern and peripheral economies", said Jonathan Loynes, chief European economist at Capital Economics. "The big picture is that the economic growth required to bring the region's debt crisis to an end is still nowhere in sight."
Howard Archer, chief European economist at IHS Global Insight, said: "Ongoing largely weak data and survey indicate that the eurozone is headed for a further GDP drop in the third quarter as it struggles against tight fiscal policy in many countries, high and rising unemployment, muted global economic activity and ongoing serious sovereign debt tensions that weigh down on confidence and limit investment.
"Consequently even if lower inflation and some limited temporary easing of sovereign debt tensions allows eurozone economic activity to stabilise in the fourth quarter, GDP is still likely to contract by 0.5 per cent overall in 2012. Meanwhile, the contraction in eurozone GDP in the second quarter reinforces our belief that the European Central Bank will trim interest rates from 0.75 per cent to 0.5 per cent within the next couple of months."
Eurostat also said today that between May and June, industrial production fell 0.6 per cent in the eurozone and 0.9 per cent in the EU as a whole. On a year-on-year basis the decline was still more marked, with industrial production down 2.1 per cent in the eurozone and 2.2 per cent in the EU.
London's Centre for Economics and Business Research today downgraded its forecast for global growth this year from 2.8 per cent to 2.6 per cent. And it predicted growth of 2.7 per cent in 2013, down from an earlier estimate of 3.2 per cent. The think-tank also warned in a statement that the "outlook could well be worse than this".
Its senior economist Tim Ohlenburg said: "Both 2012 and 2013 look like difficult years for the world economy, but growth should be in moderately positive territory as long as risk factors remain just that. However, extensive conflict between Israel and Iran, a eurozone implosion or a slump in China all have the potential to turn a couple of slow years into a renewed global recession."
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