EU recession deepened at end of last year
The recent appreciation of the euro came to a sharp halt yesterday and European stock markets fell after official figures showed that the European recession deepened in the last quarter of 2012.
Gross Domestic Product (GDP) in the 17 euro zone states dipped by 0.6 per cent in the last three months of 2012, representing the sharpest quarterly contraction for four years.
Consensus forecasts had predicted a fall of 0.4 per cent for the period.
The 0.6 per cent fall followed a 0.1 per cent drop in the previous quarter, and means that, on a yearly basis, euro area GDP shrank by 0.5 per cent in 2012.
Across the 27-member state bloc, GDP was down 0.5 per cent on the quarter.
The euro fell to a three-week low against the dollar on the back of the Eurostat figures which indicated a deepening of the EU economic crisis.
The fall in economic activity affected some of the biggest economies in the bloc. Germany contracted by 0.6 per cent on the quarter, marking its worst performance since 2009. This reflected a sharp drop in exports and a fall in investment in machinery and equipment.
France contracted by 0.3 per cent, more than had been estimated. Italy also surprised on the downside, experiencing a 0.9 per cent fall in GDP, its sixth successive quarterly fall.
Portugal was one of the worst performing countries, with GDP down 3.2 per cent during the year, slightly more than the 3.0 per cent forecast by its bailout troika.
Specific figures for Ireland have not yet been released.
Barclays Capital said the figures showed that the domestic issues that the euro area was experiencing at the country level “are still very much there” and worsening for some countries due to weak domestic demand and a large fiscal drag. “The external environment with the US, UK, Japan has also been particularly weak in H2 2012.”
However, it predicts a recovery in 2013, driven by an improvement in the German economy. This view was reflected by market commentators, with most expecting the German contraction to be short-lived.
The weak export performance will add to concerns that the recent appreciation of the euro threatens to curb an export-led recovery.
Yesterday’s figures were revealed as finance ministers of the G20 nations gather in Moscow for a two-day summit .
The figures will also increase pressure on the European Central Bank (ECB) for action.
Justin Doyle of Investec Ireland said the dismal numbers raised the chances of ECB monetary policy action.
London-based Daiwa Capital Markets said the figures reflected the lagged effects of the pre-OMT (outright monetary transactions) fears of a disintegration of the euro. “Indeed, the recent rebound in sentiment indicators suggests that GDP will stabilise at the start of this year and gradually recover in the second half, leaving output over 2013 as a whole, however, still down by 0.2 per cent.” – Additional Reporting: Reuters