Eurozone economy suffers dramatic plunge
• Eurozone GDP plummets 4.6% in a year
• Germany at centre of eurozone slump
• French economy set to fall 3%, instead of forecast 1.5%
- guardian.co.uk, Friday 15 May 2009 11.52 BST
- Article history
The eurozone has plunged deeper into recession, with German exports and investment collapsing, and France suffering its longest downturn in 60 years.
The 16-nation single currency zone shrank by 2.5% in the first three months of the year compared with the previous quarter. It is the worst performance since records began in 1995, and a more severe decline than economists had expected.
Compared with a year ago, the eurozone's gross domestic product (GDP) fell by a record 4.6%, according to the European Union's statistics office, Eurostat.
Taken as a whole, the 27-nation European Union shrank by 2.5% in the first quarter. Analysts believe the recession reached its deepest point during the quarter, although economic recovery is not expected until next year.
Germany's export-driven economy, which has been battered by the collapse in world trade, is at the centre of the eurozone slump. It suffered its biggest quarterly decline on record, the worst in at least four decades.
Europe's biggest economy shrank by 3.8% on the quarter and by 6.9% on a year ago. Germany's federal statistical office said it was the biggest drop since it began compiling quarterly figures in 1970.
"This is a worse start to the year than we could have imagined," said Jürgen Michels, an economist at Citigroup. "It can't get much worse, but [it can't get] much better either. It is questionable whether the economy will grow again this year."
The decline, driven by falls in exports and investment, marks the fourth quarter of contraction, Germany's longest slump on record. The economy shrank by 2.2% in the fourth quarter of last year and by 0.5% in each of the two previous quarters.
The euro slipped against the dollar on the news. It fell to $1.3598 from $1.3625 before the data, 0.3% down on the day.
France, the eurozone's second-biggest economy, contracted by 1.2% in the first quarter and Italy, the next biggest economy, shrank by 2.4%.
Before yesterday, France was the only major European economy not to have officially fallen into recession. But its statistics office has now revised down French GDP figures for last year, admitting that the economy has actually been shrinking since the second quarter of 2008. France last suffered four quarters of contraction in a row in 1949.
Christine Lagarde, the French finance minister, said the economy is now set to shrink by 3% this year. This is double the 1.5% decline estimated earlier by the government.
Is the worst over?
The European commission has already warned that the eurozone is in its deepest and widest recession since the second world war. This month, the commission said it expected the recession across Europe to be twice as bad as previously predicted and more than 11% of the workforce to join the ranks of the unemployed.
But economists took heart from some signs of recovery. Howard Archer, of Global Insight, said: "The good news is that latest data and survey evidence point to substantially reduced contraction in the second quarter so it looks highly likely that the first quarter marked the low point in the eurozone's recession.
"The fiscal and monetary policy stimulus that has been enacted across the eurozone seems to be feeding through to lift economic activity, along with the help provided to banking sectors. Inventory adjustment is also now well advanced."
Marco Valli of UniCredit agreed that the recession reached its low point in the last quarter. "Business surveys have resumed a rising trend in April, and we suspect that more improvements lie ahead. It is therefore extremely likely that the first quarter was the trough of the recession," he said.
Nick Kounis of Fortis bank also said the second quarter should be "much better", with the slump in global demand easing and confidence improving.
But he added: "The bad news is that the road to recovery will be long and winding with the eurozone likely to underperform the US and of course emerging Asia in the coming quarters."
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