THE EURO-ZONE recession intensified markedly earlier this year. It outpaced the US slowdown in ferocity and was dragged down by a contraction of almost 4 per cent in the German economy.

Gross domestic product (GDP) in the 16-country region contracted by a greater-than-expected 2.5 per cent in the first quarter, according to official data yesterday.

That deepened what was already the worst recession in continental Europe since the second World War. The final quarter of 2008 had seen a 1.6 per cent fall in GDP.

The scale of the slowdown highlighted the dramatic impact of the global crisis on continental Europe. Germany’s export-dependent economy, the largest in Europe, contracted by 3.8 per cent in the first quarter – the largest drop since the country started compiling quarterly data in 1970.

The US economy shrank by 1.6 per cent in the first quarter.

“Spring has not yet arrived in the euro area,” said Julian Callow, European economist at Barclays Capital.

The latest data, which sent the euro sharply lower, came at the end of a week in which European policymakers had become more confident, spotting “green shoots” on the horizon.

On Monday, European Central Bank president Jean-Claude Trichet described the global economy at “around the inflection point”.

Economists said forward-looking indicators still suggested that the worst of the euro zone’s recession was over.

However, the latest data will increase pressure on Europe’s politicians, who were warned this week by the International Monetary Fund that economic recovery in the region next year depended on bolder and more forceful policy action.

Marco Annunziata, the chief economist at Unicredit, argued that the first-quarter slump “increased the chances of a better performance in the second quarter”, but had put previous policy responses in a bad light. The data “showed there was a strong need for a much more forceful, co-ordinated fiscal response right from the start”.

Besides Germany, the pace of economic contraction was particularly severe in the Netherlands, which saw a 2.8 per cent fall in GDP, and Italy, which reported a 2.4 per cent contraction.

The most dramatic fall was in Slovakia – the euro zone’s newest member – where GDP fell by 11.2 per cent compared with the previous three months.

France continued to fare relatively well amid the global economic storms, thanks to the bigger role played by domestic demand in supporting growth.

It reported a 1.2 per cent fall in first-quarter GDP.

The first-quarter euro-zone GDP figures may have been exaggerated by companies cutting production faster than demand, and running down inventories, said economists. That could result in a rebound in production in the second quarter. – ( Copyright The Financial Times Limited 2009)