Economy contracts in Q3 pushing Euro area into recession

Kazakhstan News.Net Friday 16th November, 2012

BRUSSELS - Euro area relapsed into technical recession after contracting for the second consecutive quarters with the debt crisis continuing to pull down growth.

According to flash estimates published by Eurostat, the statistical office of the European Union, economic growth in the 17-member eurozone during July-September quarter contracted by 0.1% but economic growth rose by 0.1% in the 27 member EU.

On the yearly basis, the euro zone contraction widened to 0.6% from a revised drop of 0.4%.

In the second quarter of 2012, growth rates were -0.2% in both zones.

Compared with the same quarter of the previous year, seasonally adjusted GDP fell by 0.6% in the euro area and by 0.4% in the EU27 in the third quarter of 2012, after -0.4% and -0.3% respectively in the previous quarter.

During the third quarter of 2012, GDP increased by 0.5% in the United States compared with the previous quarter (after growth of 0.3% in the second quarter of 2012) and fell by 0.9% in Japan (after growth of 0.1%).

Compared with the same quarter of the previous year, GDP rose by 2.3% in the United States (after growth of 2.1% in the previous quarter) and by 0.2% in Japan (after 3.4%)

Those two consecutive quarters of contraction put the euro zone's 9.4 trillion euro ($12 trillion) economy officially in recession, although Italy and Spain have been contracting for a year already and Greece is suffering an outright depression.

Germany and France, the euro zone's biggest economies, could not save the bloc from a double-dip recession even though both countries managed 0.2 per cent growth in the quarter.

Large, countries like Italy, Spain and the Netherlands all contracted and Belgium, a big exporter, stagnated.

"The data confirmed that, despite continued growth in Germany and France, the euro-zone as a whole is now officially in recession. We expect the recession to deepen markedly in the coming quarters," Capital Economics analysts said.

Adding to the gloom, the European Central Bank warned Thursday that the euro-zone faces an even deeper recession this year, with the single-currency economy to shrink 0.5 per cent, rather than 0.3 percent.

Growth in 2013 is now forecast to be only an anaemic 0.3 per cent, not the 0.6 per cent expected previously, an ECB survey of forecasters showed.

"The main factor behind the downward revision for 2012 was the prolonged uncertainty in the euro area, which was also reflected in weak economic indicators in summer and early autumn," the survey said.

Compounding the problems, inflation (which requires tight policy control rather than stimulus) will hit 2.5 per cent this year, up 0.2 percentage points, it said

Millions of people across Europe have been protesting against enforced austerity measures that EU policymakers say are crucial to ending the debt crisis. But all are not in tandem with this approach.

Many think tanks have been urging EU nations to promote growth through stimulus.

"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.

The European Commission does not support this view pointing out that labor costs are falling and exports are rising for Greece, Portugal, Spain and Ireland. It has been arguing that austerity is a necessary evil to bring down unsustainable budget deficits

Up ahead, the European Commission sees a 0.4 per cent contraction for the euro zone in all of 2012.

Hopes for a recovery next year are also fading, with the European Commission saying the economy will grow just 0.1 per cent in 2013.

All is not gloomy with Eurostat stating Thursday that the euro zone's annual inflation fell marginally to 2.5 per cent in October from 2.6 per cent in September, suggesting an end to a run of stubborn inflation that has contributed to the difficult environment.

Among the EU member states, in October 2012, the lowest annual rates were observed in Greece (0.9%), Sweden (1.2%) and Latvia (1.6%), and the highest in Hungary (6.0%), Romania (5.0%) and Estonia (4.2%).

Compared with September 2012, annual inflation fell in thirteen member states, remained stable in four and rose in ten.

The lowest 12-month averages up to October 2012 were registered in Sweden (0.9%), Greece (1.4%) and Ireland (1.9%), and the highest in Hungary (5.5%), Estonia (4.3%) and Poland (4.0%).

The main components with the highest annual rates in October 2012 were transport (4.1%), alcohol tobacco and housing (both 4.0%), while the lowest annual rates were observed for communications (-3.5%), recreation culture (1.0%), clothing and household equipment (both 1.2%).

The main components with the highest monthly rates were clothing and education (both 2.2%) followed by alcohol tobacco (0.9%), while the lowest monthly rates were observed for transport (-0.6%), communications (-0.4%), recreation culture and hotels restaurants (both -0.3%).

In particular, garments (0.10 percentage points), footwear, vegetables and tobacco (0.03 each) had the largest upward impacts, while fuels for transport (-0.13), accommodation services (-0.05) and package holidays (-0.04) had the biggest downward impacts.