Eurozone economy shrinks by 0.2%

 
Visitors pass Peugeot production line It was France's third consecutive quarter of zero growth

The economy of the eurozone shrank 0.2% in the three months from April to June compared with the previous quarter.

The figures from Eurostat covering the 17 countries that use the euro followed zero growth in the previous quarter.

Europe's biggest economy, Germany, grew by 0.3% in the second quarter, helped by exports and domestic consumption.

France announced its economy had recorded zero growth in the period, which was better than had been expected.

The French economy had also posted zero growth in the previous two quarters.

GDP measures the total amount of goods and services produced by an economy.

"Germany has asserted itself thanks to growing exports to countries outside the eurozone," said Christian Schulz at Berenberg Bank.

"It's hardly a surprise that consumption has increased due to low unemployment, rising wages and a low rate of inflation."

How some eurozone economies are faring

Q3 2011 Q4 2011 Q1 2012 Q2 2012

Source: Eurostat figures showing % change compared with previous quarter

Eurozone

0.1

-0.3

0

-0.2

Germany

0.4

-0.1

0.5

0.3

France

0.3

0.0

0.0

0.0

Italy

-0.2

-0.7

-0.8

-0.7

Spain

0

-0.3

-0.3

-0.4

Netherlands

-0.3

-0.6

0.2

0.2

Portugal

-0.6

-1.4

-0.1

-1.2

Cyprus

-1.0

-0.2

-0.4

-0.8

'Vicious circle'

The economies of the 27 members of the EU also contracted by 0.2%.

Start Quote

You might say that Germany is finally getting a taste of what the periphery has been going through for the past year or so.”

End Quote

Among the eurozone's biggest contractions, Portugal's GDP shrank 1.2%, Cyprus recorded a 0.8% contraction and Italy was down 0.7%.

Comparable figures from Ireland and Greece are not yet available.

On Monday, Greece released GDP figures that showed its economy contracted by 6.2% in the second quarter, compared with the same period a year earlier, but did not provide figures for the quarter compared with the previous quarter.

The first quarter's zero growth means the eurozone is still not in recession on the generally accepted definition of two consecutive quarters of negative growth, but the outlook for the rest of the year is gloomy.

"What we see is a vicious circle of budget cuts, high interest rates in the periphery and sovereign debt rising," said Aline Schuiling at ABN Amro.

"Policymakers are moving very slowly. We expect another contraction in Q3."

Greece, Spain, Italy, Cyprus and Portugal, all of which are receiving assistance from European bailout funds, are in recession.

"Overall, the story of a resilient core and a floundering periphery continues," said Azad Zangana at Schroders.

"The resilience of the core economies is likely to be tested in the coming quarters, with leading indicators suggesting slowing order books and falling business confidence."

An example of the leading indicators was the ZEW index of investor sentiment in Germany, which has declined for the fourth consecutive month to its lowest level this year.

View from Germany

Germany is an exporting economy, so when some of its prime markets go into recession, its own economy suffers.

As one of the country's newspapers put it: "If our neighbours are gradually drowning, at some point Germany will be in deep water too."

Last week, some of the country's world-leading companies reported drops in profits. Siemens, the huge engineering company, is trying to cut costs; Thyssen Krupp, the steel-maker, announced it was reducing the hours of some employees.

What isn't clear is whether the slowdown will prompt German voters to conclude that they should be more reluctant to help Greece, Spain and the other euro countries in difficulty, or whether it might lead them to conclude that their government's policy of eurozone austerity is making things worse, including in Germany itself.

View from France

It comes to something when stagnation in France brings a sigh of relief - but the latest figure on economic output is slightly better than was anticipated.

The Bank of France had predicted the country would slip into recession in the autumn, with two consecutive periods of negative growth.

But across the economic spectrum, the other figures are poor.

Consumer confidence is falling. Unemployment has risen - for the 14th consecutive month - and in September, the new Socialist government will be hit with another slew of redundancies.

All together, the eurozone countries are locked into a downward spiral, with worrying implications for the UK economy and the embattled German Chancellor, Angela Merkel.

The French President says there has never been a greater need for European stimulus. But at home, business leaders warn the 2013 budget, to be debated in September, must contain serious structural reform of French public spending, removing the considerable social costs that are damaging new business investment.

 

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  • rate this
    0

    Comment number 131.

    >119. Chris Neville-Smith
    >I believe the total cost of the Iraq was around £10 billion. I personally
    >think we should judge wars on lives lost v lives saved and not money,
    >but against a £1,000 billion debt that's small change.

    Agree about measuring cost.

    Guessing your £10B figure is the UK contribution?
    The cost to US taxpayers is orders of magnitude higher and ongoing.

  • rate this
    +1

    Comment number 130.

    Hold an Olympic games in every capital city in the Euro-zone, after all, the one we just had in London sorted out all the problems the UK had.

  • rate this
    0

    Comment number 129.

    105. David Horton
    There are a significant number of people who are pro-EU because....federation will liberate everyone into something akin to a socialist-type paradise.
    ///////////
    Really? I know a significant number of people who are Pro-EU, but none has ever mentioned this ideology of yours. On the contrary, they have very realistic, rational reasons, all about surviving in the global market.

  • rate this
    +2

    Comment number 128.

    127. Gnome Chomsky JUST NOW

    "Without Europe we would be stuffed"


    Explain why?

    Sounds a little bit unlikely to me. Much like the right wing press and their propaganda....

    And the pro euro types who spout scare mongering propaganda....

  • rate this
    -1

    Comment number 127.

    I believe we need tougher regulations on our media who have created a bizarre anti-European belief in much of the public. Without Europe we would be stuffed and it is completely irresponsible of the right-wing rags to create a mind-set which is against it

    If we can elect a semi-decent party who are willing to make the tax dodgers pay, we might just be able to save our granchildren's future.

  • rate this
    0

    Comment number 126.

    120.inacasino
    "Luckily we do not have dictators in Italy or Germany today thanks to the EU."
    -
    What do you mean by dictatorship? Are you talking about the Troika?

  • rate this
    +1

    Comment number 125.

    @119.Chris Neville-Smith

    I never claimed that financial crisis CAUSED the wars. The wars and the financial crisis are both symptoms, not causes.

    Many commentators will point out that US aggression towards Iran is due to the coming end of the dominance of the Petrodollar as the core resource trade currency, which has propped up the US dollar for the last 39 years.

  • rate this
    +1

    Comment number 124.

    I know lets have a summit, somewhere nice.
    Only one problem, the leaders will have to return from their hols, somewhere nice.

  • rate this
    0

    Comment number 123.

    @52.Cnut the not so Great
    What's Germany doing that we can't?

    they've somehow managed to increase exports to the Far East at a time when the growth rate in that area is significantly slowing & increased domestic consumption (which was/is ridiculously low), most economists would say it's not substainable but they do seem to have a talent for magically producing growth from thin air.

  • rate this
    +1

    Comment number 122.

    >100. Chris Neville-Smith
    >91. I'll take you seriously when you explain how Libya and Syria and
    >supposedly an upcoming war in Iran is connected to the financial crisis
    >(bearing in mind that the far bigger wars in Iraq and Afghanistan started
    >when the world economy was in a far better state).

    Excellent point.

    Google "Why We Fight" and "military industrial complex". Read and watch.

  • rate this
    0

    Comment number 121.

    88 D Kirkham, Japan is a unique country with it's own very different social values. In many ways decades behind the west. It is simply good at a certain types of manufacturing. However it is limping along supported by QE and borrowing that makes the UK's look like pocket money. Certainly the Japanese economy is not particularly healthy.

  • rate this
    0

    Comment number 120.

    This may delight the little Englanders who fail to acknowledge that in this at least Cameron was right to say that 'we are in this together'.

    The problem is not about the EU, it is global and it was global in the 1930's when there were also people who buried their heads. Luckily we do not have dictators in Italy or Germany today thanks to the EU.

  • rate this
    0

    Comment number 119.

    110.

    That wasn't the point of the post (the point was challenging farkyss's sweeping statement that the financial crisis caused the wars in Libya and Syria), but to answer your question:

    I believe the total cost of the Iraq was around £10 billion. I personally think we should judge wars on lives lost v lives saved and not money, but against a £1,000 billion debt that's small change.

  • rate this
    0

    Comment number 118.

    82. "Why the hell are we always so focused on growth?"
    86.Chris Neville-Smith
    "Many reasons, ...tax revenue. The more money individuals and companies earn, the more money the government gets in tax, and the sooner it can clear the deficit.

    Close tax loopholes/havens. Tax revenues up.
    By cutting public services, those who have practiced tax avoidance/evasion can buy private provision.

  • rate this
    -1

    Comment number 117.

    0.7% versus 0.3%
    well, it was a tough decision but, it seems the Eurozone were right not to join the UK.

  • rate this
    +2

    Comment number 116.

    The british problem is if we create employment we do not give jobs to our young but suck in more eec nationals, because they are in direr straights. and this causes it own social unrest because the inferstructer cannot sustain the new arrivals. for we still have the jobless, and more people who want housing. so it is in Britain interest to see that the Euro sort itself out.

  • rate this
    0

    Comment number 115.

    I run my own business and work in China. I have more work than I can cope with.
    If you want me to grow, stop pouring my corporation tax down the drain: Olympics, Syria opposition, Afghan war, Trident, new aircraft carriers so expensive we must scrap the old ones which are still good, security for Tony Blair's profitable overseas lectures.

    Then I may feel like taking on staff and work harder.

  • rate this
    +7

    Comment number 114.

    My French neighbours bemoan higher food prices and redundancies but France has still closed down for most of July and all of August as usual. If France were facing bankruptcy I think it would be wide awake during the summer. Reality has yet to hit France. In the UK we have been doomsaying so long we have lost hope, and are only just wondering where our industry disappeared to.

  • rate this
    +3

    Comment number 113.

    57.Nemesis of Neo Nasties
    46 Minutes ago
    I presume the government's "solution" to this crisis will be to kick the disabled, the unemployed, the sick and the old.

    I think its the final solution

  • rate this
    -1

    Comment number 112.

    Seriously?


    Could not give a flying monkeys!

 

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