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









































'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

    Comment number 151.

    " if you just counted London and the SE it's the strongest economy in Europe."

    it was the government thinking like that, that got England into this economic and social black hole.

  • rate this

    Comment number 150.

    145.Gnome Chomsky
    Without Europe we would become a third world country overnight. The financial implications are always kept secret from the gullible"
    Well here's your chance to enlighten us!!

  • rate this

    Comment number 149.

    145. Gnome Chomsky 1 MINUTE AGO Without Europe we would become a third world country overnight. The financial implications are always kept secret from the gullible

    Ah yes. The sort of baseless, scare mongering, made up tripe the pro crowd usually throw out.

    I sometimes wonder if the reason they dislike the concept of a referendum is they are unable to form any reasoned argument.... Who knows ;D

  • rate this

    Comment number 148.

    Eurozone still not officially in recession - however there is no doubt more anti-EU propaganda will be rammed down our throats from the impartial British press

  • rate this

    Comment number 147.

    The reason that Euro land is so depressed, is that it is all about unfair welfare aid and red tape, that the rest of us have to pay tax for. Reduce tax, welfare dependency, red tape and economies will boom. Forget Global warming, that is just another tax source.

  • rate this

    Comment number 146.

    132 if you look at the figures you will see most EU countries are doing better than the UK. Which figures? Greece, Italy, Spain. Even Gmbh.3% is hardly stellar. Unemployment? Borrowing.

    By many measures UK is doing less badly. Parts of Europe are OK but I would bet if you just counted London and the SE it's the strongest economy in Europe.

  • rate this

    Comment number 145.

    Without Europe we would become a third world country overnight. The financial implications are always kept secret from the gullible

    Can we get all those who 24/7 go on and on and on and on about wanting a referendum on Europe and pack em off somewhere so they can all whinge between themselves

    They are puppets to Tory rags, pawns of the powerful, the sleeping unconscious, and liked by no one.

  • rate this

    Comment number 144.

    >134. The Bloke

    >Wrong. Those countries [Italy / Germany] 'lost' WW2 and became
    >functioning, democratic states. They don't need the EU for that any
    >more than we, Switzerland or Norway do.

    Looking at the last 40 years of UK politics where's the evidence for the UK being a functioning, democratic state? We certainly seem to need something different, whether from the EU or elsewhere..

  • rate this

    Comment number 143.

    133. herculep0irot
    130. Name Number 6
    You mean like the Athens games in 2004 ?

  • rate this

    Comment number 142.

    Does anyone else think that our chancellor knows nothing about either business or economics?

    As for the EU, I still don't see how countries with the ability to control fiscal policy in isolation to each other can work to one harmonious monetary policy? oh that's right......they can't.

  • rate this

    Comment number 141.

    82. "Why the hell are we always so focused on growth?"
    Cut Whitehall and the numbers and expenditure on MPs and Lords. Move them out of the Palaces of Westminster. Close tax loopholes/havens.Stop fighting wars. Reduce spending on weapons
    Growth uses finite resources and helps create polution
    Reduce working hours to create more employment
    Build more social housing-lower rents

  • rate this

    Comment number 140.

    Bottom line is, instead of getting stuck into Europe in a positive way the Tories have spent most of the time in fighting and trying to destablise Europe. What a bizarre self-flagellating attitude. Europe is still better off than the UK, and from my experience the standards of living in many EU countries is far better.

  • rate this

    Comment number 139.

    Plenty of pro EU drum beaters on here today.

    So come on guys and gals, what about a referendum?

    After all, you can put a great case together, right? And no I don't mean the usual vague threats. A referendum would settle it once and for all. And the pro camp should want to do it....right? Or are you chicken?

    It would be a popular referendum and would generate huge interest.

  • rate this

    Comment number 138.

    136. David Horton
    Do we have freedom of speech? Don't you see that you are just made to believe you have freedom of speech? Why does this board have a moderator? Why do people get locked up for posting abuse on twitter? On TV there is practically no freedom of speech, unless you are there to promote the UK over the rest of the world.

    You've been conned.

  • rate this

    Comment number 137.

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

    Holding on to its investment capital: -
    Its banks do not sell good companies like JLR, Cadbury and ICI down the river.
    Many of its well-off do not take their capital offshore.
    Capital and labour cooperate.
    The central bank pursues sound money.

  • rate this

    Comment number 136.

    127.Gnome Chomsky
    I believe we need tougher regulations on our media
    I am sure you do mate, but here in good ole' Little England, we have something called freedom of speech.

    We also have freedom of a whole lot of other things but one freedom I don't have is the freedom under the BBC rules to say what I really think of people who make unintelligent, offensive, childish and puerile comments.

  • rate this

    Comment number 135.

    What's the point the author makes?

    Since 24/07/12 the euro's up 3c against $.

  • rate this

    Comment number 134.

    7 Minutes ago
    "Luckily we do not have dictators in Italy or Germany today thanks to the EU."//

    Wrong. Those countries 'lost' WW2 and became functioning, democratic states. They don't need the EU for that any more than we, Switzerland or Norway do.

  • rate this

    Comment number 133.

    130. Name Number 6
    You mean like the Athens games in 2004 ?

  • rate this

    Comment number 132.

    If you look at the figures and you will see that most EU countries are doing far better then UK, and so is the EU as a whole. And it will continue. I go to Germany for business trips often, they are unbeatable as their focus on quality, good work + long term thinking means they now have very solid and well balanced economy, not the spin and fluff and burst bubble like the UK.


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