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Eurozone recession deepens sharply

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(Globalpost/GlobalPost)

The recession in the 17-nation eurozone deepened sharply in the fourth quarter of 2012 as the debt crisis continued to sap growth and confidence as jobs are lost, with the outlook remaining uncertain and weak, official data showed on Thursday.

The eurozone economy shrank 0.6 percent from the three months to September when it dropped 0.1 percent.

In the second quarter of 2012, the eurozone economy had contracted 0.2 percent on a sequential basis, meaning the recession has now lasted three quarters.

Analysts said the latest figures were worse-than-expected, with the major economies also now dragged down, including Germany, the bloc's powerhouse.

Data so far in 2013 suggested the situation was stabilising, they said, but the outlook remained weak and hostage to key risks, such as the political uncertainty in Italy and Germany ahead of elections.

Compared with output in the fourth quarter of 2011, the eurozone economy contracted 0.9 percent, according Eurostat agency figures.

For the wider 27-member European Union, output fell 0.5 percent compared with third quarter 2012 when the bloc had eked out growth of just 0.1 percent to narrowly avoid being in recession, as defined as two consecutive quarterly negative figures.

Compared with fourth quarter 2011, the EU economy shrank 0.6 percent.

Eurostat said that for 2012 as a whole, the eurozone economy contracted 0.5 percent and the EU 0.3 percent.

Analysts said the figures painted a bleak picture, noting that Germany shrank 0.6 percent in the fourth quarter compared with the third when it managed growth of 0.2 percent.

France was down 0.3 percent, Italy slumped 0.9 percent, Spain shrank 0.7 percent and non-euro Britain was down 0.3 percent as the Olympics' boost faded.

ING Bank analyst Peter Vanden Houte said he had expected a eurozone downturn of 0.4 percent instead of the 0.6 percent reported, noting that not only had the "usual suspects" Spain and Italy shown negative figures, but also Germany, France and the Netherlands.

"The outlook for 2013 remains subdued. While a gradual improvement of the world economy is likely to support European exports, domestic demand is bound to remain very weak as fiscal tightening and rising unemployment will take their toll," he said.

Vanden Houte said early indicators this year showed the situation is stabilising after the fourth quarter plunge over but ING only expected "a weak recovery from the second quarter onwards."

At the same time, "a lot of things still can go wrong. The economic and political outlook in Spain and Italy remains uncertain, while the difficult bailout of Cyprus could stoke contagion fears," he said.

Other analysts were equally downbeat.

Christian Schulz of Berenberg Bank said that while the debt crisis may have eased, the improvement came too late to help the economy in the fourth quarter.

Germany might get a bounce as exports recover but "competitiveness problems and adjustment needs mean that France remains on a slippery slope towards financial crisis," Schulz said.

-- "Dismal" end to year --

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Howard Archer of IHS Global Insight said the fourth quarter fall "brought a dismal end to a very difficult year for the eurozone.

"However, the signs are that eurozone economic activity bottomed out around last October and it is very possible (the economy) could stop contracting in the first quarter," helped by efforts by the European Central Bank to tame the debt crisis by controlling borrowing costs, Archer said.

The hope "is that a sustained overall easing of sovereign debt tensions and generally improved financial markets further reduces uncertainties and steadily lifts consumer as well as business confidence.

"Improving global growth would also help matters and Eurozone exporters will be hoping that the euro does not appreciate further after hitting a 15-month high above $1.37 early in February," he added.

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http://www.globalpost.com/dispatch/news/afp/130214/eurozone-recession-deepens-sharply