Euro zone economy shrinks 0.2%

The euro zone economy shrank in the second quarter of the year, having stood flat in the first, despite continued German growth.

GDP in the 17-member currency union shrank by 0.2 per cent on the quarter, according to figures from the EU statistics body Eurostat. The wider 27 member EU recorded a similar decline.

Germany posted growth of 0.3 per cent today, marginally beating forecasts, but the country's forward-looking sentiment index slid for a fourth month running.

Aside from a downward blip in the last three months of 2011, the euro zone has posted modest but consistent growth over the past three years even though some of its members have been in recession for some time.

"It was a touch better than we expected, but I think overall it confirms the idea that the euro zone is in a recession phase," Aline Schuiling, economist at ABN AMRO, said of today's data.

"Policymakers are moving very slowly. There are limited prospects for growth in the euro zone. We expect another contraction in Q3."

France recorded a third consecutive quarter of zero growth. The central bank has already said it expects a mild contraction in the third quarter.

Austria and the Netherlands almost matched Germany's performance, each posting growth of 0.2 per cent.

Finland, one of Germany's northern European allies in pushing for austerity, suffered a 0.7 per cent year-on-year fall in GDP.

Bailed-out Portugal's recession deepened with GDP diving by 1.2 per cent on the quarter and Cyprus contracted by 0.8 per cent.

Figures released yesterday showed deficit-cutting measures helped to shrink Greece's economy 6.2 per cent year-on-year in the second quarter. Economists predict the slump will continue as the government scrambles to secure billions in additional cuts to keep bailout funds flowing.

Italy's second quarter data last week showed the economy contracted 0.7 per cent quarter-on-quarter, compounding the difficulties for Mario Monti's technocrat government as it tries to avoid a bailout.

Spain's economy shrank 0.4 per cent over the same period, pushing it deeper into recession.

Agencies