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Business Home > International
Eurozone avoids recession

(AFP) / 15 May 2012

The eurozone avoided recession with zero growth in the first quarter, official data showed on Tuesday surprising analysts who had expected worse but still warn of a long, hard uphill slog.

The 17-nation single currency area showed zero growth in the first three months of the year, the European Union said, after a 0.3-percent contraction in the last quarter of 2011.

Analysts had forecast a 0.2-percent fall in output from January to March, which would have marked two quarters running of shrinkage, or recession.

The figure, subject to confirmation on June 6, provided some respite for policy-makers on the day German Chancellor Angela Merkel meets new French President Francois Hollande for the first time since his election victory.

Hollande throughout his election campaign called for a German-inspired treaty on strict fiscal discipline to be widened to include measures to boost medium-term economic output, but Merkel opposes any renegotiation of the pact.

Germany, which has the biggest economy in the European Union, helped to keep the whole of the eurozone out of recession by posting unexpectedly strong growth of 0.5 percent.

“The region remains heavily reliant on Germany,” said London-based economist Jennifer McKeown of Capital Economics.

The French economy stagnated in line with the average, while out put in Italy contracted by 0.8 percent and in Spain by 0.3 percent. Even the Netherlands, regarded as a strong economy, experienced contraction of 0.2 percent.

McKeown said things “will only get worse” with the eurozone periphery mired in recession — Greece posting a 6.2-percent slide — and German exports faltering.

“Policymakers’ talk of growth seems unlikely to amount to anything in the foreseeable future,” McKeown said, warning that “the danger of a eurozone break-up is as great as ever.”

European Commission forecasts released on Friday tipped an overall contraction of 0.3 percent this year before renewed growth of 1.0 percent in 2013, with unemployment at a record 11 percent.

Martin van Vliet of Dutch-based ING Bank said with “no sign of a strong, sustained economic bounceback on the horizon,” a more serious jolt may still lie ahead.

“A further escalation of the debt crisis, let alone a Greek euro exit, could well derail the envisaged recovery,” he said.

German investor confidence fell sharply in May following five months of gains in a row, according to a closely-watched barometer of investor sentiment by the ZEW institute.

The institute said the outcome of elections in Greece and France “has made it more doubtful that European governments will resolutely fight the sovereign debt crisis.”

Speaking in Paris after taking power from Nicolas Sarkozy, Hollande said he had a mandate from the French people to “open a new path in Europe.”

Not all economists reacted despondently.

Marie Diron of Ernst & Young said the data “suggests that the economy is not falling off a cliff under the burden of fiscal austerity.”

Looking to the Merkel-Hollande talks, she said that the eurozone “should not give up on fiscal austerity that is unavoidable.”

But she added that “investment spending in some areas where investment has been too low” would be welcome alongside reforms to economic structures.

Eurostat said the EU as a whole, which also includes big non-euro states Britain and Poland, recorded similarly weak 0.1 percent growth, after a 0.3 percent contraction the previous quarter.

London-based IHS Global Insight’s Howard Archer summed up: “There seems a compelling case for the European Central Bank to cut interest rates from the current level of 1.0 percent.

“But we suspect that the bank will remain reluctant to do so.”



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