News from the real eurozone

Forecasters were expecting to hear that the eurozone economy shrank in the last three months of 2012 - but the size of the decline did come as a surprise.

The estimated 0.6% fall in output across the region is the worst since the start of 2009 and, for once, Germany took its share of the bad news. Its national output also shrank for the first time in 2012 - also by 0.6%.

Of course, there is still enormous variation in these figures. But Thursday's data means that the 17 countries of the single currency area have not expanded as a group since the autumn of 2011. They are also a vivid reminder that the more optimistic mood in European financial markets - and recent meetings of European governments - has yet to leave much of a mark on the real economy. (I had more on this point in a blog a few weeks back.)

For the likes of Italy and Spain, the fourth-quarter figures are the culmination of a dismal year, which has seen their economies shrink by upwards of 2%. Portuguese national output shrank by nearly that much in the fourth quarter alone, ending 2012 nearly 4% smaller than at the end of 2011.

Sir Mervyn King warned this week that financial markets might be getting a little ahead of themselves - and you got the sense he was putting it mildly. Stock markets did indeed fall today, in response to the news on GDP.

But, investors are supposed to look forward, not back.

The exuberance of recent months might turn out to be well founded, if the fourth quarter of 2012 turns out to be the low-point of Europe's recession, and falling borrowing costs start to produce a virtuous cycle from higher confidence to improving growth.

That is the best guess of most forecasters today.

But even the optimists are not expecting the crisis economies to actually grow for many months yet. The nagging worry in the minds of European policymakers right now ought to be how that continued gloom is going to play out politically.