Recession back in euro area, crisis going deeper

BRUSSELS

A man holds a 50 euro note at a grocery in the Pino Montano market of the Andalusian capital of Seville. REUTERS photo

The eurozone economy shrank 0.1 percent in the third quarter, Eurostat said yesterday, confirming its original estimate that showed the 17-nation currency bloc had fallen back into recession as the bloc official are discussing further financial unity options.

After output fell 0.2 percent in the second quarter, the eurozone met the standard definition of a recession being two consecutive quarters of contraction.

In the 27-member EU the economy grew 0.1 percent in the period from July through September, after contracting 0.2 percent in the second quarter.

Compared with a year earlier, Eurostat said the eurozone economy shrank 0.6 percent in the third quarter while the EU 27 was down 0.4 percent, after falls of 0.5 percent and 0.3 percent respectively in the second quarter.

The EU’s largest economy Germany, and France, both grew 0.2 percent in the third quarter while Spain contracted 0.3 percent and Italy dropped 0.1 percent.

Non-euro Britain posted a sharp gain of 1.0 percent, boosted by the London Olympic Games.
Howard Archer of IHS Global Insight said the data only confirmed that the eurozone was doing badly, as reflected in record unemployment of 11.7 percent.

The outcome would have been worse but for a strong export performance as weaker southern member states offset the positive data for France and Germany and even they could be at risk, Agence France-Presse quoted Archer as saying.

“Latest data and survey evidence remain generally weak and the odds currently strongly favour the eurozone suffering further ... contraction in the fourth quarter of 2012,” he said.

“Significantly, Germany looks to be in severe danger of contracting in the fourth quarter, as does France,” he added.

For 2013, when IHS expects the eurozone economy to shrink 0.2 percent, Archer warned of “tightening fiscal policy in many countries, high and rising unemployment, limited consumer purchasing power and likely recurrent eurozone sovereign debt tensions.”

Unity report

Meanwhile, four top European Union officials have set out a blueprint for a closer financial union in a move that will clash with some member states’ cherished national interests, The Associated Press reported yesterday. EU Council President Herman Van Rompuy, together with the leaders of the EU Commission, European Central Bank and the 17 EU countries that use the euro, unveiled a report Thursday that called for the EU’s 27 member countries to pool their financial and monetary policies further than they have done already in their measures to combat the region’s financial crisis.

The reports said there was “a need to go further and to put in place a stronger framework for coordination, convergence and enforcement” of policies. It is feared such language would be seen as a call to transfer more power to Brussels. The European Central Bank (ECB) decided yesterday to leave its main refinancing rate at a historic low of 0.75 percent at its last policy meeting of 2012, AFP reported. No ECB watchers had been expecting the Bank to ease borrowing costs in the euro area this month as such a move would likely have little effect on the region’s recession-hit economy at the current juncture, they argue.