Eurozone slides into recession for second time in three years
Fears powerhouse German economy will start to shrink, but European Commission says nadir of 2009 will not be repeated
Published 16/11/2012 | 05:00
The eurozone entered its second recession since 2009 in the last quarter despite modest growth in Germany and France, new figures showed yesterday.
The two leading economies both managed 0.2pc growth in the July-to-September period, but the economies in the Netherlands, Spain, Italy and Austria shrank. Figures for the Irish economy have not been published yet.
While Europe is technically in recession following two quarters of shrinking growth, the contractions was small. Economic output fell 0.1pc in the quarter following a 0.2-pc drop in the second quarter.
Those two quarters of contraction put the eurozone's economy in recession, although Italy and Spain have been contracting for a year already and Greece is suffering an outright depression.
A rebound in Europe is still far off. The debt crisis that began in Greece in late 2009 is still reverberating around the globe and holding back a lasting recovery from the Great Recession of 2008/09 in much of the world.
"That was the last good number from Germany for the time being," said Joerg Kraemer, chief economist at Commerzbank. "The business climate. . . has caved in."
Most economists expect Germany to contract in the fourth quarter for the first time since the end of 2011. Where Germany goes, France is likely to follow and economists also expect its economy to shrink in the October-to-December period.
For all of 2012, the European Commission sees the eurozone contracting 0.4pc and growing just 0.1pc in 2013.
The Irish economy is seen expanding 0.4pc next year despite problems in most of our major markets.
Business surveys point to difficult times ahead and the public's backlash to austerity policies is growing. Millions of workers went on strike across Europe on Wednesday to protest against government spending cuts that they say are driving the region into a deeper malaise, but which Germany and the Commission say are crucial to healing the wounds of a decade-long, credit-fuelled boom.
"We are now getting into a double-dip recession which is entirely self-made," said Paul De Grauwe, an economist with the London School of Economics. "It is a result of excessive austerity in southern countries and an unwillingness in the north to do anything else," he said.
The Commission says the eurozone's economies will be much healthier overall next year than in 2009, which was the nadir of bloated budgets when Greece's fiscal deficit reached a record 15.6pc and Ireland was not far off at 13.9pc.
The threat of a eurozone break-up has also diminished after the European Central Bank promised to buy eurozone government bonds in potentially unlimited amounts, should a country first seek help from the bloc's permanent rescue fund.
There have been fledgling signs the Italian economy is improving. Consumer confidence has risen and the pace at which industrial output has fallen is slowing.