Eurozone recession extends into 6th quarter

Economic slump longer than during financial crisis of 2008-09

5/15/2013

French Finance Minister Pierre Moscovici, reacts as he walks toward the media after the weekly cabinet meeting in Paris, Wednesday, May 15, 2013. The French national statistics agency, Insee, said Wednesday that gross domestic product fell 0.2 per cent in the first quarter of the year, effectively moving France back into recession, and with eurozone's second-largest economy, the French economy is likely to exacerbate problems throughout the euro region.(AP Photo / Michel Euler)

ASSOCIATED PRESS

PARIS  — The recession across the economy of the 17 European Union countries that use the euro extended into its sixth quarter — longer than the calamitous slump that hit the region in the financial crisis of 2008-9.

Eurostat, the EU’s statistics office, said today that nine of the 17 eurozone countries are in recession, with France a notable addition to the list. Overall, the euro region’s economy contracted 0.2 percent in the January-March period from the previous three months.

Though that’s an improvement on the previous quarter’s 0.6 percent decline, it’s another unwelcome landmark for the single currency bloc as it grapples with a debt crisis which has forced governments to slash spending and raise taxes.

These austerity measures have inflicted severe economic pain and social unrest. Unemployment across the eurozone is currently at a record high of 12.1 percent — in some countries, such as Greece, it’s as high as 27.2 percent.

Though this recession is not nearly as deep as the one in 2008-9, it is the longest in the history of the euro, which was launched in 1999. A recession is officially defined as two straight quarters of negative growth.

“The eurozone is facing a double blow from necessary restructuring of its domestic economy and somewhat disappointing growth in world trade, in particular demand from emerging markets,” said Marie Diron, senior economic adviser to Ernst & Young.

There was also bad news for the wider 27-country EU, which includes non-euro members such as Britain and Poland. It too is now officially in recession after shrinking by a quarterly rate of 0.1 percent in the first quarter, following a 0.5 percent drop in the previous period.

With a population of more than half a billion people, the EU is the world’s largest export market. If it remains stuck in reverse, order books for companies in the U.S. and Asia will be hit. Last month, U.S.-based Ford Motor Co. lost $462 million in Europe and called the outlook there “uncertain.”

Other major economies have faltered this year but none are in recession. The annualized contraction in the eurozone of around 0.9 percent contrasts with the equivalent expansion of the U.S. of 2.5 percent.

For many analysts, that discrepancy highlights Europe’s flawed economic approach since the end of the financial crisis. Instead of keeping the spending taps on — as the U.S. has largely done — the region concentrated on austerity even though companies and consumers weren’t able to plug the gap left by the retrenching state.

However, there have been some recent indications that Europe’s leaders are willing to ease up on their adherence to cuts and tax rises at a time of recession. Some countries, for example, are being given more time to meet certain economic and financial targets.

Despite the latest relaxation of rules — and an easing of concerns over the debt crisis in financial markets — most economists think the eurozone will remain in recession in the second quarter. Growth is then expected to emerge in the second half of the year — but it isn’t expected to amount to much.

In its spring economic forecast, the European Union’s executive arm, the Commission, predicted that the eurozone will shrink 0.4 percent this year, better than the 0.6 percent contraction in 2012.

The eurozone has been in recession since the fourth quarter of 2011. Initially it was just the countries at the forefront of its debt crisis, such as Greece and Portugal that were contracting.

But the malaise is now spreading to the so-called core countries. Figures today showed Germany, Europe’s largest economy, grew by a less-than-anticipated quarterly rate of 0.1 percent, largely because of a severe winter.

Germany’s paltry growth still allowed it to avoid a recession following the previous quarter’s 0.7 percent fall, when orders for the country’s high-value good from its struggling euro neighbors declined.

However, France, Europe’s second-largest economy, has not avoided that fate. On the first anniversary of Francois Hollande becoming president, figures showed that the country’s economy contracted by a quarterly rate of 0.2 percent for the second quarter running.

“We are in Europe, the eurozone countries are our main clients and our main suppliers, and when the environment around us is depressed, well, that’s the main factor in the slowing of the French economy,” French finance minister Pierre Moscovici said.

This marks the third time that France has been in recession since 2008, when a banking crisis pushed the global economy into its deepest contraction since World War II.

Guillaume Cairou, CEO of the consultancy Didaxis and president of France’s Club of Entrepreneurs, said the news that the country is in recession merely confirms the difficulties its businesses have long experienced.

“The situation of companies on the ground is grave and more serious today than in 2008,” Cairou said in a written statement.

Whatever problems France is experiencing at the moment, they pale in comparison with the continuing contractions in countries that have either been bailed out or are trying to avoid a financial rescue.

The country has faced the most acute economic difficulties and it remains mired in a six-year recession that is commonly being referred to as a depression. The Greek economy has been ravaged by a series of austerity measures, such as wage and pension cuts and tax rises, demanded by international creditors in order to return the country’s public finances to health.

In the first quarter, the Greek economy was 5.3 percent smaller than it was the year before — quarterly figures are not provided. Though that is an improvement compared to the past two quarters — in the third quarter of 2012, the annual rate of contraction stood at 6.7 percent — Greece remains a long way off posting growth and its unemployment rate stands at over 27 percent.

The country’s creditors and the Greek government have recently voiced hopes that the recent calmer financial backdrop may herald a return to growth in the latter part of this year.

Much worse is projected for Cyprus, which recently accepted a bailout following a damaging crisis that saw its banks close for nearly a couple of weeks. Many economists fear that the small eastern Mediterranean island nation will see its output shrink at Greek-style levels over the coming couple of years as its economy readjusts. Capital controls remain in place, two months after the crisis that gripped the country. In the first quarter, the island’s economy shrank by a quarterly rate of 1.3 percent.

Portugal, which has also been bailed out, remains in recession, though the quarterly decline of 0.3 percent in the first three months of the year is substantially lower than the previous quarter’s 1.8 percent drop.

Spain, which has sought help for its banks, remains in recession, as is Italy, which has also embarked on the austerity path. Both countries’ economies shrank by a quarterly rate of 0.5 percent in the first quarter.

Carlo Sangalli, President of Italy’s Confcommercio business lobby, called on the government to press ahead with measures to support domestic demand “and give the possibility for the real economy to recover and grow.”

Quarterly figures for Ireland, which hopes to exit its bailout program this year, have yet to be released.