Friday 14 November 2008
by: Agence France-Presse
European Economic and Monetary Affairs Commissioner Joaquin Almunia presents the European Union economic forecasts during a news conference in Brussels November 3, 2008. The eurozone has sunk into a recession for the first time since its formation in 1999. (Photo: Reuters)
Brussels - The economy of the 15 nations sharing the euro has slumped into recession for the first time ever, EU data released Friday revealed, with GDP falling 0.2 percent in the second and third quarters.
The 27-nation EU as a whole avoided the same fate as its economy also suffered a 0.2 percent contraction in the third quarter but had recorded zero growth in the second, according to the official initial estimates.
Two consecutive quarters of falling gross domestic product (GDP) is the normal definition of recession.
The announcement in Brussels confirmed widely held fears that the eurozone had fallen into recession for the first time since its formation in 1999.
"Not only did the third quarter contraction in GDP confirm that the eurozone is now in recession, but latest data and survey evidence indicate that the fourth quarter is likely to see a sharper fall in GDP as the financial crisis bites harder," said Howard Archer chief European economist at Global Insight.
On a 12-month comparison, the eurozone economy grew 0.7 percent in the third quarter, down sharply from 1.7 percent in the previous quarter, the official Eurostat agency said.
Germany, Europe's largest economy, is deepest in the mire, according to the figures, with its economy contracting by 0.2 percent in the third quarter of 2008 after falling 0.4 percent in the previous three months.
Italy and other eurozone members joined Germany in the recession club.
France, the eurozone's second-largest economy, narrowly avoided the 'R' word, with its economy managing a 0.1 percent increase in the July-September third quarter.
The Spanish economy contracted for the first time since 1993 in the third quarter, shrinking 0.2 percent compared with the three months to June.
Britain, steadfastly outside the eurozone, suffered a 0.5 percent fall in economic growth in the third quarter but its zero growth in the previous period saves it from the recession stigma.
"We now have painful proof that there has been an excessive degree of complacency, which implies that the policy response in Europe is well behind the curve," opined Marco Annunziata, chief economist at the Unicredit group.
"The picture is gloomy: Germany and Italy contracted more sharply than expected, Spain capitulated as well, France narrowly avoided recession ... but its demise is only a matter of time."
Support from net exports has evaporated, due to the deteriorating global growth outlook and the rise of the euro, while domestic consumption and investment face "a formidable combination of headwinds," he added.
The effect of the recession on consumer and company spending was amply illustrated by other figures released Friday showing new car sales in Europe down 14.5 percent in October over the same month last year.
The figures marked the sixth consecutive monthly fall in new car registrations, the European automakers association ACEA announced.
Commission chief Jose Manuel Barroso said that the EU is ready to take action at the World Trade Organisation if it judges that US aid for its struggling auto industry is "illegal."
The US Congress approved an aid package worth 25 billion dollars in September to help the auto industry invest in new generation technology but no timetable was fixed for payments to be made.
Meanwhile, European automakers -- who have cast an envious eye at the US plan and called for similar action at home -- have been forced to close factories and cut jobs.
One positive effect of the lethargic economy was the continuing fall in inflation in Europe, which was the major worry just months ago.
Eurozone inflation fell back in October to a nine-month low of 3.2 percent, Eurostat said Friday.
The figure, which compared with 3.6 percent in September, marked the third month running that consumer prices have fallen since hitting a record 4.0 percent in June and July on the back of all-time high oil prices which have since dropped.
Economists have said that inflation would probably keep falling in the coming months, increasing the scope for the European Central Bank (ECB) to cut interest rates faced with sharply slowing economic activity.
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