| 8.5°C Dublin

Eurozone in recession for 18 months

THE euro area economy shrank more than forecast in the first three months of the year, extending a recession to a record sixth quarter and increasing pressure on the currency bloc's leaders to spur growth.

Gross domestic product (GDP) in the 17-nation eurozone fell 0.2pc after a 0.6pc decline in the previous quarter, the European Union's statistics office in Luxembourg said.

The slowdown has spread to the euro core. The German economy, Europe's largest, expanded less than forecast, while France slipped into a recession and Italy's contraction exceeded estimates.

The European Central Bank (ECB) cut its benchmark interest rate to a record low of 0.5pc this month and president Mario Draghi said the ECB was ready to act again if needed.

The first-quarter contraction "reinforces pressure on the ECB to come up with further measures to try and support eurozone growth", said Howard Archer, an economist at IHS Global Insight in London.

"An interest rate cut to 0.25pc looks ever more possible, while the ECB will also continue to look into the case for a negative deposit rate and ways of getting more credit through to smaller companies."

The euro area's economic gloom contrasted with the UK, where Bank of England Governor Mervyn King declared that a recovery is now "in sight" as he presented his final forecasts with an improved outlook for UK growth.

"Of most significance today is that there is a welcome change in the economic outlook," Mr King said in London. "This hasn't been a typical recession, and it won't be a typical recovery."

In the central bank's quarterly Inflation Report, officials predicted that growth may accelerate to 0.5pc this quarter from 0.3pc in the first three months of the year.

The central bank sees inflation peaking at 3.1pc in the Q3, lower than expected in February. (Bloomberg)

Irish Independent