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Euro zone rout

Europe's post-recession recovery hit a roadblock on Friday as German economic growth unexpectedly halted and Italy went into reverse in the final quarter of 2009.



Europe's post-recession recovery hit a roadblock on Friday as German economic growth unexpectedly halted and Italy went into reverse in the final quarter of 2009, knocking total euro zone GDP growth almost flat. The weak data comes at a bad time for the single currency bloc as governments struggle to sort out Greece's debt crisis and contain financial market fears that are driving the euro lower and government bond yields higher.


Gross domestic product in the 16-country euro currency zone came in just 0.1 percent higher than the previous quarter, below the 0.3 percent forecast and well short of the 0.4 rise that lifted it from recession in the third quarter. Euro zone GDP dropped 4.0 percent in 2009 as a whole. "While we do not expect the euro zone to relapse back into recession, GDP growth of just 0.1 percent ... highlights the fact that the region still faces very challenging economic and financial conditions," said Howard Archer of IHS Global Insight.

France was a rare bright spot in a rush of official estimates for how the closing quarter of the year went. German quarter-on-quarter growth was zero after expansions in the two previous quarters that ended a year-long recession. Growth of 0.2 percent had been forecast. Italy did even worse with a GDP fall of 0.2 percent from the third quarter, contrary to forecasts that the euro zone's third largest economy would keep its head above water with a 0.1 percent increase. But France, the euro zone's second largest economy, reported an increase of 0.6 percent compared to the third quarter. French GDP, unlike export-heavy Germany, was supported in large part by healthy consumer spending.

Spain, next in size after Germany, France and Italy but hard hit by the a housing boom collapse, stayed in recession with a fourth quarter GDP dip of 0.1 percent. "The euro zone growth engine has taken a break in the fourth quarter but it should return soon," ING bank economist Carsten Brzeski said. "Today's numbers, however, were a good reminder that recoveries can not only be bumpy but also capricious." Part of Europe's problem is that it needs a reasonable pace of economic growth to help limit the surge in sovereign debt caused by the recession of 2008-2009.

Forecasters for now believe that the euro zone will have a weaker recovery than the United States this year, just as it fell harder than America in 2009. National GDP reports showed fourth-quarter stagnation too in Portugal and recession deepened in Greece, with a quarter-on-quarter drop of 0.8 percent in the fourth quarter after a 0.5 percent drop in the third. Portugal, like Spain, is trying to rein in its bloated debt and avoid the pain inflicted on Greece, the first country to require pledges of support from other euro zone governments in the 11 years of monetary union.

Concern over how Athens will service its debt has hammered the euro, which is trading near a 8 1/2-month low versus the dollar and has fallen nearly 10 percent since late 2009. A deepening Greek recession will only make Athens' plans to slash its swollen budget deficit harder to deliver. The euro edged lower on Friday, trading in the middle at its weakest since May 2009, at around $1.3550.


Source : Reuters