Thursday, September 6, 2012

Euro zone's economy heads towards recession

By Robin Emmott
September 6, 2012

A European Union (E.U.) flag flutters in front of the monument of Parthenon on Acropolis hill in Athens June 17, 2012. REUTERS/John Kolesidis(Reuters) - Strong exports limited the euro zone's economic contraction in the second quarter of this year despite falling investment, inventories and private consumption that point to output shrinking overall in 2012.
The EU's statistics office Eurostat confirmed on Thursday that gross domestic product in the 17 countries using the euro fell 0.2 percent quarter-on-quarter. It revised the year-on-year fall to 0.5 percent from a previously reported 0.4 percent.
The debt crisis that began in Greece nearly three years ago has crushed Europe's efforts at recovery from the 2008/2009 global financial crisis, probably sending the bloc into recession for the second time in just three years.
"Weakness is the name of the game," said Joost Beaumont, a senior economist at ABN AMRO in Amsterdam. "We see another contraction in the third quarter because domestic demand will be hit by fiscal consolidation, rising unemployment, tight credit conditions and the high uncertainty of theeuro zone crisis."
The euro zone would already be in a technical recession, were it not for flat output in the first three months of the year, after a 0.3 percent quarterly contraction in the last quarter of 2011.
Eurostat said a fall in household consumption subtracted 0.1 percentage point from the final quarterly GDP figure and shrinking investment and inventories took away 0.2 percentage points each, compared with the previous three months.
Strong exports, however, added 0.6 percentage point which, after the negative contribution of imports, left the net result from trade at a positive 0.2 percentage point.
With the Chinese economy slowing and the U.S. economy struggling to build a solid recovery, the euro zone cannot rely on exports to pull it out of the downturn, however.
"Leading indicators continue to point, in broad terms, to more of the same in the third quarter, though with a risk of the external sector softening in line with recent evidence of weakness in manufacturing activity globally," Ken Wattret, a euro zone economist at BNP Paribas, wrote in a note to clients.
Most economists see the euro zone, which generates 16 percent of global economic output, shrinking by at least 0.3 percent this year. A recovery may only come in mid-2013.
In its latest assessment, the Paris-based organization for Economic Cooperation and Development said on Thursday that Europe's problems were also "dampening global confidence, weakening trade and employment and slowing economic growth".

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