Germany

Eurozone recession deepens as German engine splutters

It was only a matter of time. With many of its debt-ridden euro partners in recession, Germany could only swim against the tide for so long.

Japan Times,

16 February, 2013

Figures Thursday showed that output in Germany, Europe’s largest economy, contracted by more than anticipated in the final three months of 2012. And it was the German drop that lay behind a deepening of the recession across the economy of the 17 European Union countries that use the euro.

Eurostat, the EU’s statistics office, said the eurozone’s economic output shrank by 0.6 percent in the final quarter of last year from the previous three-month period. The decline was bigger than the 0.4 percent drop expected in markets and the steepest fall since 2009, when the global economy was in its deepest recession since the end of World War II.

There are hopes, though, that the fourth quarter of 2012 will mark the low point for the eurozone, and Germany in particular. Many economists are predicting that the eurozone recession may end in the first half of the year.

Nevertheless, Thursday’s figures highlight the scale of the problems that have afflicted the single currency zone over the past year. Fears of a breakup, if not a collapse, of the currency dented confidence at a time when many governments were embarked on fairly severe debt-reduction programs.

In 2012 as a whole, the eurozone economy shrank by 0.5 percent, a stark contrast from the 2.2 percent growth recorded in the U.S. and the 1.9 percent in Japan.

“The fourth quarter’s bigger-than-expected fall underlined the fact that, while sentiment toward the region has improved, the hard news on the economy remains distinctly weak,” said Jonathan Loynes, chief European economist at Capital Economics.

The eurozone has contracted for three straight quarters — a recession is officially defined as two quarters of negative growth. The eurozone is not alone in finding it increasingly tough as the year progressed but the fourth quarter figures confirm the region is struggling worse than others.

If the quarterly rate is annualized, Capital Economics’ Loynes said the eurozone will be contracting by around 2.5 percent, much worse than 0.1 percent drop in the U.S. and Japan’s 0.4 percent fall. Eurostat does not provide annualized comparisons.

The worry for European policymakers is that output is declining not just in the weaker, debt-laden economies such as Greece and Spain, where governments have been aggressively increasing taxes and cutting spending in order to get a grip on their public finances and relieve the pressure inflicted on them by skeptical investors.

The standout from the quarterly figures was Germany. Its economy shrank by a quarterly rate of 0.6 percent in the fourth quarter, more than the 0.4 percent expected, as demand for its exports from its European neighbors was dragged down by the underlying economic malaise.

France, Europe’s second-biggest economy, also saw output drop by 0.3 percent. Both economies are now one quarter away from recession.

Unemployment in Greece rose to a record 27 percent in November as a result of the financial crisis and austerity measures that will leave, according to one survey, nearly a third of the population in poverty by the end of the year.

The economy contracted a further 6 percent in the fourth quarter of 2012 from the previous year, the statistics agency said. That followed annual contractions of 6.7, 6.4 and 6.7 percent in the previous three quarters of 2012.

The figures provided by Eurostat showed that seven eurozone countries were in recession at the end of 2012 — Greece, Spain, Italy, Cyprus, Portugal, the Netherlands and Finland. If upcoming figures for Slovenia show it contracted for the third quarter running in the final three months of the year, then that number rises to eight, almost half the eurozone.

Alongside the debt-reduction efforts that governments are pursuing across the eurozone, the region’s exporters also have to contend with a currency that has been rallying on foreign exchange markets, potentially making their products less competitive in the international marketplace