Euro-Zone Economy In Recession For First Time
LONDON (Dow Jones)--The euro-zone economy is in recession, with output having contracted in two consecutive quarters for the first time since the currency area was formed in 1999.
The European Union statistics agency Eurostat Friday said in the three months to the end of September, the euro-zone's gross domestic product was 0.2% lower than in the second quarter, and 0.7% higher than in the third quarter of 2007.
That performance was weaker than expected. Economists surveyed by Dow Jones Newswires last week estimated euro-zone GDP fell 0.1% on the quarter, and rose 0.7% on the year.
The euro-zone economy contracted 0.2% in the second quarter.
Official confirmation that the combined gross domestic product of the 15 countries which use the euro is shrinking will likely spur the European Central Bank to take bolder action than it has to date.
While the Bank of England has cut its key interest rate 3.75 percentage points this year, and the U.S. Federal Reserve has cut 3.25 percentage points, the ECB has cut by just three quarters of a percentage point. Its governing council next meets Dec. 4.
European leaders are also likely to seek a common policy response to the downturn. Well into 2008, European politicians insisted the currency area would be relatively unaffected by the credit crunch, which they saw as chiefly a U.S. problem.
However, the euro zone has preceded the U.S. in entering a recession. The U.S. economy shrank 0.1% in the third quarter, but expanded 0.7% in the second.
So far, the response of European governments has been piecemeal, and less substantial than actions taken by their Chinese and U.S. counterparts.
But E.U. leaders will now enter their regular year-end meeting in Brussels Dec. 11 and 12 in search of a coordinated response which may include steps to help the increasingly troubled auto sector, among other measures.
Some euro-zone policy makers worry that the currency area's strict budget rules will prevent governments from responding to the downturn, and therefore prolong the effects of the financial crisis on the broader economy.
'This is a severe constraint which may cause the real effects of the financial crisis to persist much longer than in the U.S., or for that matter the U.K.,' Greek Finance Minister George Alogoskoufis said Thursday.
Eurostat didn't provide any further detail on the composition of GDP. But it is likely most parts of the economy were weak, with the credit crunch undermining domestic demand at a time when exporters are finding it harder to find buyers.
European consumers have held back on spending as concerns about job losses rise. The European Automobile Manufacturers Association, or ACEA, Friday said new passenger-car registrations fell 15% on the year in October at 1.13 million vehicles.
And major exporters also expect to suffer. Airbus Chief Operating Officer-Customers John Leahy Friday said he expects new airplane orders to be 'significantly lower' next year.
There is little prospect of an immediate recovery in economic growth. The Organization for Economic Cooperation and Development Thursday forecast that the euro-zone economy will contract 0.5% in 2009. That's in line with the International Monetary Fund's most recent forecast.
Ireland was the first euro-zone member to enter recession, since its economy contracted in both the first and second quarters. Germany is also now in recession, with its economy having contracted 0.5% in the third quarter and 0.4% in the second.
Italy is also in recession. The GDP of the euro-zone's third largest member shrank 0.5% in the third quarter, following a drop of 0.4% in the second quarter.
However, the euro-zone's second largest member narrowly avoided slipping into recession. In a performance that Finance Minister Christine Lagarde said was 'astonishing,' the French economy grew 0.1% in the third quarter, having contracted 0.3% in the second.
Spain's economy contracted in the third quarter for the first time since 1993, its GDP shrinking 0.2%. |
|
