Euro zone in recession again

Written by Reuters | Brussels | Updated: Nov 16 2012, 09:24am hrs
The euro zone fell into a recession in July-September, the second since the global financial crisis in 2009, as French resilience could not make up for a slump across Europe and the three-year debt crisis slowed Germany to a crawl. Economic output in the 17-country euro zone fell 0.1% in the third quarter, the EU's statistics office Eurostat said on Thursday, following a 0.2%drop in the second quarter.

Those two quarters of contraction put the euro zone's 9.4 trillion euro economy officially in recession, although Italy and Spain have been contracting for a year already and Greece is suffering an outright depression. Germany and France, the euro zones biggest economies, could not save the bloc from a double-dip recession even though both countries managed 0.2% growth in the quarter. Large, countries like Italy, Spain and the Netherlands all contracted and Belgium, a big exporter, stagnated.

Millions of people across Europe protested against government spending cuts that EU policymakers say are crucial to ending the debt crisis but which others blame for the economic contraction.

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 unwillingness in the north to do anything else, he said. Not everyone shares that view and the European Commission says labour costs are falling and exports are rising for Greece, Portugal, Spain and Ireland, arguing that austerity is a necessary evil to bring down unsustainable budget deficits. The European Commission sees a 0.4% contraction for the euro zone in all of 2012.

Hopes for a recovery next year are also fading, with the European Commission saying the economy will grow just 0.1% in 2013. A rebound in the euro zone could be vital for the rest of the world as the US and China struggle with the impact of the crisis on their companies' ability to grow.

In one positive sign, Eurostat said separately that the euro zones annual inflation fell to 2.5% in October from 2.6% in September, suggesting an end to a run of stubborn inflation that has contributed to the difficult environment.

But after months of resilience, Germany, Europe's largest economy, is seeing its companies unnerved by the crisis and demand for its goods in the euro zone and abroad is drying up.

While German gross domestic product expanded by 0.5% in the first quarter, it slowed to 0.3%in the second and weakened again in the third quarter.

Economists expect a worse performance in the fourth quarter.