Europe's south and north split amid recession fears

BRUSSELS/PARIS-Reuters

Workers assemble Ford’s Fiesta cars at the production line of the manufacturer in Cologne, Germany. The German economy, Europe’s largest, shrank less than expected in the last quarter of 2011 and was still able to post 3 percent growth on the year overall. AP photo

The eurozone economy’s shrunk at the end of 2011 and will flirt with a mild recession under the weight of the sovereign debt crisis, but strength in France and resilience in Germany may keep it above water.
The drag is coming from a stricken, debt-laden south, epitomised by a slumping Italy.

Economic output in the 17-nation currency area fell 0.3 percent in the fourth quarter from the third, as expected by economists in a Reuters poll, the European Union’s statistics office Eurostat said yesterday.

The slump was the first contraction since the second quarter of 2009 at the height of the global financial crisis, when output shrunk 0.2 percent. The 27-nation EU economy also shrunk 0.3 percent in the October-to-December period.

But economic progress was very diversified.

“We seeing very wide regional divergences and this fourth quarter data doesn’t really help us see where the economy is going,” said Greg Fuzesi, a European economist at JP Morgan. “The fundamentals make you think the economy will stay in recession but business surveys suggest otherwise,” he added.

Underscoring just how poisonous the debt crisis has been for businesses and the economy, gross domestic product grew just 0.7 percent in the fourth quarter compared to a year earlier after posting 2.4 percent growth at the start of 2011, when Europe was recovering strongly from the 2008/2009 global financial crisis.

Even a mild recession masks the gap between the wealthy nations of northern Europe and those of the poorer, less productive south that lived beyond their means and now face years of austerity to cut debts and reform their economies.

Germany’s economy, the biggest in the eurozone, contracted slightly in the fourth quarter, but both it and France, which eked out anaemic growth, performed better than forecast.

German gross domestic product contracted 0.2 percent, a slowdown from upwardly revised 0.6 percent growth in the July-September period, data showed yesterday.

France fared better, growing by a stronger-than-expected 0.2 percent in the fourth quarter from the previous three months as companies invested more and consumers continued to spend.

Finland posted quarterly growth of 0.7 percent. The exception in the northern half of the currency bloc was the Netherlands which subsided into recession, shrinking by 0.7 percent, following a third-quarter contraction of 0.4 percent.

But further south, there was little solace for European economies that the European Commission warned this week were in need of reform and put them on a blacklist with pressure to act or face sanctions.

Italy’s economy contracted a steeper than expected 0.7 percent in the final part of last year, throwing the country into a slump expected to last for much of 2012 and joining Belgium, Portugal and Greece in recession.

The International Monetary Fund forecasts a full-year contraction of 2.2 percent in 2012, while the Bank of Italy sees a more modest decline of 1.2-1.5 percent. The government still has an official projections of -0.4 percent, considered unrealistic by all independent forecasters.