Euro Zone Economy Shrinks, Returning France to Recession

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Published: May 15, 2013

PARIS — The euro zone economy shrank more than expected in the first three months of 2013, official data showed Wednesday, marking a sixth consecutive quarter of decline as France returned to recession and Germany marked time.

The 17-nation euro zone contracted by 0.2 percent from the last three months of 2012, Eurostat, the statistical agency of the European Union, reported from Luxembourg, less than the 0.6 percent decline recorded in the fourth quarter, but more than economists’ expectations of a 0.1 percent fall.

The economy of the overall European Union, made up of 27 nations, shrank by 0.1 percent.

Germany, with the largest economy in Europe, was almost stagnant in the first quarter, managing growth of just 0.1 percent from the prior three months, when it shrank by 0.7 percent, the Federal Statistics Office reported in Wiesbaden.

France, the second-largest economy in Europe, contracted for a second consecutive quarter, meeting the common definition of a recession. The economy shrank by 0.2 percent, the same decline as in the fourth quarter of 2012.

Britain, the third-largest E.U. economy, but not a member of the euro, last month posted 0.3 percent first-quarter growth.

Among the “peripheral” euro nations, Spain’s economy shrank by 0.5 percent, the same as Italy’s. Portugal shrank by 0.3 percent, and Cyprus’s economy, the victim of a financial sector meltdown and bailout, shrank 1.3 percent. Data on Greece were not immediately available.

More than five years after the meltdown of the U.S. housing market set off the global financial crisis, the 27-nation European Union remains in turmoil, buffeted by a lack of confidence in member states’ public finances and demands for budgetary rigor to address those concerns. Unemployment in the euro zone reached a record 12.1 percent in March, and economists do not expect the labor market to turn around before next year, at the earliest.

Despite its troubles, the E.U. market remains the world’s largest, and its weakness is doubly worrying at a time when the rest of the world is not growing strongly enough to take up the slack. Moody’s Investors Service warned Wednesday that the weakness in the euro zone, combined with the mandatory “sequestration” budget cuts in the United States, would weigh on the world economy, with growth in the Group of 20 nations this year of just 1.2 percent, picking up to 1.9 percent in 2014.

In annualized terms, the euro zone economy contracted by about 0.8 percent in the first quarter, lagging far behind the 2.5 percent growth in the United States.

Japan, which reports its first-quarter G.D.P. figure on Thursday, is expected to post an annualized figure of about 2.8 percent. China in April reported 7.7 percent first-quarter growth.

That Germany grew at all was a result of increased household consumption, Germany’s statistics agency said, as exports and investment declined. Jörg Krämer, chief economist at Commerzbank in Frankfurt, estimated in a research note that the unusually cold weather had subtracted as much as 0.2 percentage point from German growth.

Even though Germany eked out a positive figure, it was “really in contractionary territory” in the quarter, Philippe d’Arvisenet, global head of economic research at BNP Paribas, said. He said more recent data showed clear evidence of a German rebound in the second quarter.

Mr. d’Arvisenet estimated that the euro zone economy would shrink this year by about 0.5 percent, following a 0.6 percent contraction in 2012. Growth is likely to return in 2014, he said, “but probably below 1.0 percent.”

A version of this article appeared in print on May 16, 2013, in The International Herald Tribune.

 

Link…

http://www.nytimes.com/2013/05/16/business/global/germany-france-economic-data.html?_r=0

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