Published — Friday 16 November 2012
Last update 16 November 2012 6:19 am
BRUSSELS/BERLIN: The euro zone debt crisis dragged the bloc into its second recession since 2009 in the third quarter despite modest growth in Germany and France, data showed yesterday.
The French and German economies both managed 0.2 percent growth in the July-to-September period but their resilience could not save the 17-nation bloc from contraction as the likes of The Netherlands, Spain, Italy and Austria shrank.
Economic output in the euro zone fell 0.1 percent in the quarter, following a 0.2 percent drop in the second quarter.
Those two quarters of contraction put the euro zone's 9.4 trillion-euro ($12-trillion) economy back into recession, although Italy and Spain have been contracting for a year already and Greece is suffering an outright depression.
A rebound in Europe is still far off. The debt crisis that began in Greece in late 2009 is still reverberating around the globe and holding back a lasting recovery.
Analysts said even the euro zone's top two economies were likely to succumb in the final three months of the year.
"That was the last good number Germany for the time being," said Joerg Kraemer, chief economist at Commerzbank. "I don't expect the German economy to return to decent growth rates until the middle of next year." "
Most economists expect Germany to contract in the fourth quarter for the first time since the end of 2011. And where Germany goes, France is likely to follow.
"We expect the French economy to contract again in the final quarter of this year," said Joost Beaumont of ABN Amro.
For all of 2012, the European Commission sees the euro zone contracting 0.4 percent, while growing just 0.1 percent in 2013. Business surveys point to difficult times ahead and the public's backlash to austerity polices is growing.
A Reuters poll of more than 70 economists predicted the bloc's new recession will extend until the end of the year and 2013 promises little better than stagnation, in line with what the Commission is forecasting.
Conducted before yesterday's data were released, the consensus was for a 2012 contraction of 0.5 percent and just 0.1 percent growth next year.
Millions of workers went on strike across Europe on Wednesday to protest the government spending cuts they say are driving the region into a deeper malaise but which Germany and the Commission say are crucial to healing the wounds of a decade-long, credit-fueled boom.
"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 Commission says the euro zone's economies will be much healthier overall next year than in 2009, which was the nadir of bloated budgets when Greece's fiscal deficit reached a record 15.6 percent of GDP and Ireland was not far off at 13.9 percent.
The threat of a euro zone break up has also diminished after the European Central Bank promised to buy euro zone government bonds in potentially unlimited amounts, should a country first seek help from the bloc's permanent rescue fund.
There have been fledgling signs the Italian economy is improving. Consumer confidence has risen and the pace at which industrial output has fallen is slowing.
Nonetheless, the country's "acquired growth" at the end of the third quarter stood at -2.0 percent, meaning that if GDP is flat in the final three months of the year, the economy will have shrunk by two percent over the year as a whole.
Spain, which has kept the euro zone on tenterhooks over a decision on whether or not to seek help from the euro zone rescue fund, is also in recession. It contracted 0.3 percent in the third quarter.
The Dutch economy shrank much more sharply than expected, by 1.1 percent on a quarterly basis, the biggest drop in the quarter of any euro zone country. Austria's economy contracted 0.1 percent. Tiny Cyprus shrank 0.5 percent.
Figures out earlier this week showed the Portuguese economy shrank 0.8 percent quarter-on-quarter while Greece tumbled further, casting doubt on whether Athens and its lenders can come up with a credible plan to put its finances back on track.
EU policymakers seem aware that government spending cuts cannot keep up at the current pace, particularly after shocking suicides in Spain by people who had their homes repossessed.
Spain's Economy Minister Luis De Guindos has repeatedly called for EU-mandated budget cuts to take into account the euro zone's recession, while Greece has been given two more years to make the cuts demanded of it.
"The last couple of days have created a new momentum for a change in policy, because up until this week, social tension was not part of the equation," said Steen Jakobsen, chief economist at Saxobank. "It seems like the tone has shifted dramatically."