Euro zone falls into second recession since 2009

BRUSSELS/BERLIN Thu Nov 15, 2012 5:28pm IST

Related Topics

Border Security Force (BSF) soldiers ride their camels as they rehearse for the "Beating the Retreat" ceremony in New Delhi January 27, 2015. REUTERS/Ahmad Masood

"Beating The Retreat" Rehearsals

Rehearsals are on for "Beating the Retreat" ceremony which symbolises retreat after a day on the battlefield, and marks the official end of the Republic Day celebrations.  Slideshow 

BRUSSELS/BERLIN (Reuters) - The debt crisis dragged the euro zone into its second recession since 2009 in the third quarter despite modest growth in Germany and France, data showed on Thursday.

The two leading economies both managed 0.2 percent growth in the July-to-September period.

But the resilience could not save the austerity-hit 17-nation bloc from overall contraction as the likes of The Netherlands, Spain, Italy and Austria shrank.

Economic output in the euro zone fell 0.1 percent in the quarter, following a 0.2-percent drop in the second quarter.

Those two quarters of contraction put the euro zone's 9.4 trillion euro 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 2009is still reverberating around the globe and holding back a lasting recovery from the Great Recession of 2008/2009 in much of the world.

"That was the last good number 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 expect its economy to shrink in the October-to-December period.

For all of 2012, the European Commission sees the euro zone contracting 0.4 percent, while growing just 0.1 percent in 2013. Business surveys point to difficult times ahead and the public's backlash to austerity polices is growing.

Millions of workers went on strike across Europe on Wednesday to protest the government spending cuts 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 unwillingness in the north to do anything else," he said.

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For GRAPHIC on euro zone link.reuters.com/tyw28s

For GRAPHIC on Germany GDP link.reuters.com/jyx22t

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

SHARP DUTCH CONTRACTION

The Commission says the euro zone'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 15.6 percent and Ireland was not far off at 13.9 percent.

The threat of a euro zone break up has also diminished after the European Central Bank promised to buy euro zone 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.

Nonetheless, the country's "acquired growth" at the end of the third quarter stood at -2.0 percent, meaning that if GDP is flat in the final three months of the year, the economy will have shrunk by two percent over the year as a whole.

Spain, which has kept the euro zone on tenterhooks over a decision on whether or not to seek help from the euro zone rescue fund, is also in recession. It contracted 0.3 percent in the third quarter.

The Dutch economy shrank much more sharply than expected, by 1.1 percent on a quarterly basis, the biggest drop in the quarter of any euro zone country. Austria's economy contracted 0.1 percent. Tiny Cyprus shrank 0.5 percent.

Figures out earlier this week showed the Portuguese economy shrank 0.8 percent quarter-on-quarter while Greece tumbled further, casting doubt on whether Athens and its lenders can come up with a credible plan to put its finances back on track.

But EU policymakers seem aware that government spending cuts cannot keep up at the current pace, particularly after shocking suicides in Spain by people who had their homes repossessed.

Spain's Economy Minister Luis De Guindos has repeatedly called for EU-mandated budget cuts to take into account the euro zone's recession, while Greece has been given two more years to make the cuts demanded of it.

"The last couple of days have created a new momentum for a change in policy, because up until this week, social tension was not part of the equation," said Steen Jakobsen, chief economist at Saxobank. "It seems like the tone has shifted dramatically." (Writing by Robin Emmott and Mike Peacock; additional reporting by Daniel Flynn in Paris and John O'Donnell, Ben Deighton and Robert-Jan Bartunek in Brussels. Editing by Jeremy Gaunt.)

FILED UNDER:
Photo

After wave of QE, onus shifts to leaders to boost economy

DAVOS, Switzerland - Central banks have done their best to rescue the world economy by printing money and politicians must now act fast to enact structural reforms and pro-investment policies to boost growth, central bankers said on Saturday.

EARNINGS

Reuters Showcase

Vodafone Ruling

Vodafone Ruling

Government will not appeal Vodafone tax ruling   Full Article 

Indian Railways

Indian Railways

Private refiners compete with state firm to sell diesel to railways   Full Article 

Facebook Results

Facebook Results

Facebook tops Wall Street revenue target in 4th quarter.  Full Article 

Tackling Deficit

Tackling Deficit

Government makes push to boost revenue as deficit deadline nears.  Full Article 

Ranbaxy Results

Ranbaxy Results

Dec-quarter net loss widens on forex loss  Full Article 

Tech Talk

Tech Talk

Apple takes high road in China smartphone standoff with Xiaomi.  Full Article 

Business Strategy

Business Strategy

Uber scraps commissions for its New Delhi taxis.  Full Article 

Job Cuts

Job Cuts

Sony to cut 1,000 jobs in smartphone business - sources.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage