Eurozone in recession as debt crisis hits growth

The 17-nation eurozone was in recession for the second time in three years in the third quarter, official data showed Thursday, as the debt crisis exacts a heavy toll and the outlook darkens steadily. The eurozone economy shrank 0.1 percent compared with the three months to June when it contracted 0.2 percent, meeting the technical definition of a recession as two consecutive quarters of decline. The figures make grim reading after massive protests Wednesday across Europe against the austerity measures governments have taken to resolve the debilitating debt crisis but which many believe only undercut growth and make the problem worse. “The data confirmed that, despite continued growth in Germany and France, the eurozone as a whole is now officially in recession. We expect the recession to deepen markedly in the coming quarters,” Capital Economics analysts said. Just in case the outlook was not dark enough, the European Central Bank warned Thursday that the eurozone faces an even deeper recession this year, with the single-currency economy to shrink 0.5 percent, rather than 0.3 percent. Growth in 2013 will be only an anaemic 0.3 percent, not the 0.6 percent expected previously, an ECB survey of forecasters showed. “The main factor behind the downward revision for 2012 was the prolonged uncertainty in the euro area, which was also reflected in weak economic indicators in summer and early autumn,” the survey said. Adding to the problems, inflation — which requires tight policy control rather than stimulus — will hit 2.5 percent this year, up 0.2 percentage points, it said. Thursday’s data showed the full 27-state European Union eked out third quarter growth of 0.1 percent, again after a contraction of 0.2 percent in the second, thereby narrowly avoiding recession. Compared with the third quarter in 2011, the eurozone economy shrank 0.6 percent in the three months to September while the EU was down 0.4 percent. Germany, Europe’s powerhouse economy, expanded 0.2 percent in the third quarter, slowing from 0.3 percent in the second and 0.5 percent in the first, highlighting how the crisis has undercut even the strongest. France meanwhile also managed 0.2 percent but Spain shrank 0.3 percent and Italy 0.2 percent, boding ill as the eurozone struggles to put its financial affairs in order through the austerity policies which are proving so unpopular. Non-euro Britain posted strong growth of 1.0 percent, helped by the London Olympic Games effect but its prospects are not good either — the Bank of England on Wednesday predicted low growth for the next three years due to the eurozone crisis, tight credit conditions and inflationary pressures. The British central bank slashed its 2013 estimate to 1.0 percent from the 2.0 percent it gave only in August. Howard Archer of IHS Global Insight said the debt crisis problems were now clearly being felt in the traditionally stronger states such as Germany and notably, the Netherlands which slumped 1.1 percent in the quarter. “In the face of tightening fiscal policy in many countries, high and rising unemployment and persistent serious Eurozone sovereign debt tensions,” the eurozone will likely weaken further and shrink 0.2 percent next year, Archer warned. The European Commission earlier this month forecast eurozone growth of 0.1 percent in 2013, with the EU as a whole on 0.4 percent.