European economy shrinks 0.3 per cent in fourth quarter

By Andrew McCathie Feb 15, 2012, 10:27 GMT

Berlin - The European economy shrank by a less-than-forecast 0.3 per cent during the fourth quarter of 2011 as the debt crisis resulted in the region's first contraction in growth since it emerged from the 2009 recession, data released Wednesday showed.

Releasing the preliminary data, the European Union statistics office Eurostat said the 17-member eurozone economy grew by 1.5 per cent last year.

Analysts had expected the data would show that the currency bloc had contracted by 0.4 per cent quarter-on-quarter in the final three months of the year after it stagnated in the third quarter.

Compared with the same quarter of 2010, the currency bloc economy expanded by 0.7 per cent, Eurostat said.

Helping to drag down growth in the currency bloc during the fourth quarter was a slump in the region's biggest and third largest economies - Germany and Italy.

But while national statistic offices said Germany contracted by 0.2 per cent and Italy shrunk by 0.7 per cent, France posted a surprise 0.2-per-cent growth rate in the final three months of the year. Analysts had expected the eurozone's second biggest economy would contract by 0.2 per cent.

However, the release of the data followed the publication of a series of positive indicators that have raised hopes that the region might be able to avoid sliding back into recession this year.

This is despite the nations at the centre of the debt crisis such as Spain and Portugal, being mired in downward economic spiral.

'All in all, we remain confident that the eurozone will skirt a technical recession, with 2012 bound to witness a gradual but steady improvement in underlying growth momentum,' said Marco Valli chief eurozone economist with Italy's UniCredit bank.

While Europe's drive to cut back high debt-and-deficit levels through tough budgetary action has hit growth in the region, signs have emerged that the recovery in the US economy is gaining traction.

At the same time, many analysts also expect China to achieve a soft landing after the authorities attempted to undercut inflationary pressures in the world's second biggest economy.

But overhanging the eurozone's economic outlook is the risk that sub-zero winter weather this month could have hit output in parts of the currency bloc. More significantly, is the threat that the debt crisis could suddenly worsen.

A standoff has emerged been Greece and EU leaders over EU demands that Athens step up its action to deal with the crisis that has pushed the country to the brink of default.

Economic growth in Greece fell by a dramatic 7 per cent in the fourth quarter compared with the same period in 2010.

Wednesday's Eurostat figures also show the 27-member EU economy slumped by 0.3 per cent quarter-on-quarter in the last three months of the year compared with a 0.3-per-cent growth in the third quarter. For the whole year in 2011, growth in the EU came in at 1.6 per cent.

While the US economy expanded by 0.7 per cent in the fourth quarter compared with the previous three months, growth in Japan contracted by 0.6 per cent.

Eurostat is scheduled to release details of the latest fourth-quarter gross domestic product next month.

Separate data also released Wednesday by Eurostat showed the eurozone's trade surplus to 7.5 billion euros (9.9 billion dollars) in December from 6.1 billion euros in November.

This followed a 0.1-per-cent month-on-month gain in exports during December compared with a 0.9-per-cent fall in imports from the previous month. For the whole year 2011, exports jumped by 13 per cent while imports grew 12 per cent.