Business

Eurozone falls back into recession

Eurozone GDP

The eurozone has returned to recession as the region's debt crisis continues to hurt demand, figures show.

The economy of the 17-nation bloc contracted by 0.1% between July and September, after shrinking 0.2% in the previous three months, Eurostat said.

The eurozone was last in recession in 2009, when the economy contracted for five consecutive quarters.

The news comes a day after millions of workers in Europe held a day of action against austerity measures.

Protests in Spain, Italy and Portugal were marred by violence.

Countries such as Greece that have been bailed out by international lenders continue to see their economies shrink. Meanwhile larger economies such as Spain have imposed spending cuts in an attempt to avoid having to ask for a bailout.

"This [the fall into recession] was totally expected because of austerity policies combined with world growth slowing down and a dramatic fall in activity in Germany and the Netherlands," said Steen Jakobsen, chief economist at Saxo Bank.

"The last couple of days have created a new momentum for a major change in policy input, because up until this week, social tension was not part of equation. It seems like the tone has shifted dramatically."

The previous recession started in 2008 in the aftermath of a deep financial crisis, which saw banks bailed out due to bad investments in financial products or property, such as in Spain and Ireland.

The austerity measures in many countries - mostly in southern Europe - have combined tax rises with cuts in salaries, pensions, benefits and social services.

They were put in place to cut huge government debts, putting more pressure on already weak economies and helping send them into recession.

'Think hard'

Figures released in the past week show that the Spanish economy contracted by 0.3% between June and September and Portugal by 0.8%.

French gross domestic product rose by 0.2% in the third quarter compared with the previous three months. But the previous quarter was revised down to -0.1% from zero, according to French statistics agency Insee.

Image caption Many European countries are suffering from high unemployment and shrinking economies

The production of goods and services in France, Europe's second-largest economy, increased "after five quarters of near stagnation", Insee said.

Greece said on Monday that its economy had contracted by 7.2% in the third quarter compared with a year earlier. It did not give a comparison with the preceding three months.

The economy of the Netherlands shrank 1.1% in the third quarter, adding to signs that the previously-healthy north of Europe is suffering as the southern parts push through more austerity cuts in weak economies.

"If you look at the indicators for the fourth quarter you see that even Germany may not grow again and that shows that the economy has an enormous need for a new impulse," said Martin van Vliet, senior economist at ING Bank.

"It's nothing to be happy about, especially if you see that other economies are growing, the United States as well. It's a wake-up call for policymakers to not lean back and think hard about where growth in Europe has to come from, if you're making so many cutbacks."

For the whole of the European Union, which includes countries such as the UK and Sweden, the economy grew by 0.2% in the quarter, after having contracted 0.2% in the previous three months.

The UK economy grew by 1% in the third quarter of the year, helped by one-off factors such as the Olympic Games. The eurozone is the UK's biggest trading partner and the decline in the bloc's fortunes helped push the UK back into recession earlier this year.

In the US, the economy grew by 0.5% in the quarter.

Export demand

The eurozone's largest economy, Germany, is still expanding, although growth has been affected by the debt crisis.

Germany's economy grew by 0.2% in the July-to-September period, down from growth of 0.3% recorded in the previous quarter and the 0.5% figure seen in the first three months of this year.

The country's growth was driven mainly by "foreign demand", federal statistics office agency Destatis said.

Unlike most of its partners in the 17-nation eurozone, Germany has mainly escaped the worst effects of the crisis that has threatened to unravel the bloc.

Until now, it has benefited from the weaker euro, making its exports more competitive outside the eurozone.

However, last month the German government cut its forecast for economic growth in 2013 from 1.6% to 1%, blaming the reduction on the eurozone crisis and weaker growth in emerging nations in Asia and Latin America.

Germany's gross domestic product (GDP) grew by 4.2% in 2010 and 3% in 2011.

However, German consumers are still spending. "Consumption by both private households and government was higher than in the second quarter when adjusted for price, seasonal and calendar variations," Destatis said.

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