Eurozone contracts, 2nd recession feared

Aug. 15, 2012 at 4:00 AM
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LUXEMBOURG, Aug. 15 (UPI) -- The eurozone slid toward a second recession in nearly four years as the economy contracted after stagnating the previous quarter, a European Union agency said.

April-to-June gross domestic product for the 17 countries that use the euro fell 0.2 percent from the first quarter's zero growth, the Eurostat statistics agency said.

Compared with 2011's second quarter, the eurozone's seasonally adjusted GDP fell by 0.4 percent, the agency said in a preliminary "flash" estimate.

Economists said the second-quarter output decline, exacerbated by government budget cuts, meant the eurozone would likely enter a recession the second half of the year, which has already begun.

Economists often define a recession as at least two consecutive quarters of GDP decline.

The eurozone, which started in 1999, entered its first official recession in the third quarter of 2008, Eurostat figures confirmed in January 2009.

Germany, the zone's No. 1 economy, managed 0.3 percent growth, thanks to strong investment and domestic consumption. In the first quarter it grew 0.5 percent.

Germany's growth was no match for No. 3 economy Italy's 0.7 percent contraction and No. 4 economy Spain's 0.4 percent -- countries that have had no economic growth for more than a year.

Greece's economy shrank 6.2 percent, but its figures -- released Monday, a day ahead of the others -- are not directly comparable with those of other eurozone countries because it does not adjust for the effects of seasonality. Greece declined 6.5 percent in the first quarter.

France, the eurozone's second-biggest economy, defied economists' forecasts of contraction and recorded zero growth -- although analysts said a closer look at the figures indicated output had in fact dropped a marginal 0.045 percent but was rounded to zero.

"Growth of the German economy was no longer strong enough to keep the total eurozone economy above the zero line," Commerzbank AG economist Christoph Weil wrote in a note to clients.

IHS Global Insight chief European economist Howard Archer said the eurozone, for all intents and purposes, is "in recession, even if it has avoided the technical definition of two successive quarters of negative quarter-on-quarter GDP."

Portugal -- which received a $96 billion bailout last year, making it the third eurozone country, after Ireland and Greece, to receive emergency funds -- slumped 1.2 percent in the second quarter. Ireland didn't report its figures.

Farther north, Finland, a close ally of Germany in the battle for greater European austerity, fell 1 percent. Belgium's economy shrank 0.6 percent. Austria and the Netherlands each grew 0.2 percent.

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