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
    +1

    Comment number 431.

    #374
    If markets loose faith in our plan we will not become greece we will become Zimbabwe .
    ------------
    It's not a plan - it's failed. That's the point.
    Markets would include all those eagle eyed credit rating agencies and traders and fund managers and bankers and speculators - right?

  • rate this
    -1

    Comment number 430.

    And Mr daily, whatever planet you are on, no....

  • rate this
    -1

    Comment number 429.

    would a pandemic not help the issue?

  • rate this
    -1

    Comment number 428.

    @424.hellblazer
    The EU has special agreements with many countries who can sell to it easily but it makes it difficult for countries with no agreement to sell to it except maybe things they really like.
    Also Norway pays a huge amount of money to the EU but pays into many funds so the whole amount is not so clear but Norway is very rich so perhaps they would pity the UK & not make it pay so much.

  • rate this
    0

    Comment number 427.

    Reeder, not reader, lol?

  • rate this
    -1

    Comment number 426.

    Hellblazer... have you seen the uk's exports over the last year? E.u. in 2011 accounted for 24 percent.... in 2012. Its 5 percent, it is pretty much David Cameron saying farewell...lol....and its thanks to our African mates, who wants crap tomatoes? Lol

  • rate this
    0

    Comment number 425.

    #402
    you're the one who is mad if you think that Britain could leave the EU, not have a trade agreement like Norway or Switzerland & that it would not have an effect on our exports. We should leave but we need a trade agreement like Norway & that will cost & would mean obeying EU trade law

  • rate this
    +1

    Comment number 424.

    421.AngelaMerkelsEvilTwin

    Thats just not 100% true. There are many countries around the world that trade with the EU for very little. When you say they will buy much less from the UK, based on what? What makes you think this? It will carry on as usual untill the Euro collapses which will obviously have a rather large effect on us.

  • rate this
    +1

    Comment number 423.

    Madrid 2020...... and Spain are begging for money..
    ..

  • rate this
    -2

    Comment number 422.

    The average Brit goes to work wearing clothes from Vietnam on a train made in Germany
    He works on a computer made in China using software from the USA
    He checks the time on his Japanese watch while texting on his mobile phone from Taiwan and gets home to a dinner heated in a South Korean microwave while sitting in front of his Malaysian TV

    Then he moans about the demise of British Industry

  • rate this
    -2

    Comment number 421.

    @402.hellblazer
    Even if we do have to pay, it certainly won't be 50 mil a day. Don't be so niave to think massive European car makers like BMW will stop selling their product in the UK..

    The cost difference of moving from the EU to EFTA (EEA) would be very small, a lot of trouble to save little. of course BMW & other EU business would still sell to the UK but they would buy much less from the UK

  • rate this
    0

    Comment number 420.

    412.fleche_dor

    Of course not everyone agree'd. But the majority agree'd did it not? There were obvious incidents like this that highlight problems with democracy.

    416.David Agnew

    Telling me to go cry somewhere else when I have insulted nobody and just expressing my opinion? Mature of you to advise me what to do. Point out the posts where my argument was destroyed, you seem to be the liar sir.

  • rate this
    +2

    Comment number 419.

    The Tories big hope for 2012 is that "Curiosity" discovers life on Mars.
    They have now run out of things to blame for their economic incompetence on Planet Earth

  • rate this
    -1

    Comment number 418.

    Amongst WWII's causes were massive social & economic inequalities, rooted in the Great Depression of 1930's & crippling WWI reparations.
    ----

    My own interpretation is that the WW1 Armistice gave Germany a timeout with its military intact

    The Allies were pretty knackered as well
    "The Great War" BBC dvd series explains it well

    Round two, aka WW2, was the inevitable continuation

  • rate this
    +1

    Comment number 417.

    Well there you have it... thumbs down, you all buy crap from China and have your phone services in India, immigration from the e.u is at ten percent.... even our Asian friends are worrying Russia will own the uk by default by 2050..... I don't care, nor do you.... keep buying Chinese, listening to Indian..... then we will maybe ask where did it all go wrong.....but, that list goes on and on......

  • rate this
    -1

    Comment number 416.

    @402.hellblazer

    Your claiming I posted things which I didn't post, in other words you are lying. I suggest you stop before you're made to look even more stupid than you do now, if such a thing is possible. your arguments have been destroyed, go away & cry somewhere

  • rate this
    0

    Comment number 415.

    Perhaps we should look at "what do we really want?" or "what is important". We have accountants/chancellors pretending to be economists, dismissing significant 'non market goods' such as true health, true education, evidence-based policy, well-being, climate change and ecosystem services. Growth is measured by 'market' forces - that is, who is making money. To spend on tat.

  • rate this
    0

    Comment number 414.

    400.
    mattmatt81

    You are saying actions by Public Sector workers can increase economic output? I thought Public Sector workers contributed nothing to wealth creation?
    I take back my last comment. You are not drunk or bonkers. You are a closet "leftie" pretending to be a Tory ;-)

  • rate this
    0

    Comment number 413.

    He isn't called Double Dip Dave for nothing.

  • rate this
    +1

    Comment number 412.

    #300 hellblazer

    Interesting interpretation of US history- hysterical, or horrible? How much consent was there amongst secessionist southern States to north in the US Civil War?

    School history lessons reveal that war arises due to disagreement & argument. Amongst WWII's causes were massive social & economic inequalities, rooted in the Great Depression of 1930's & crippling WWI reparations.

 

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