Euro zone economy shrinks again in first quarter to mark longest ever recession

Wednesday 15 May 2013 18.43
Euro zone GDP fell by 0.2% in first three months of 2013
Euro zone GDP fell by 0.2% in first three months of 2013

The recession across the euro zone economy extended into its sixth quarter - longer than the slump that hit the euro area during the financial crisis of 2008-2009.

Eurostat, the EU's statistics office, said today that nine of the 17 euro zone countries are in recession, with France a notable addition to the list.

Overall, the euro zone economy contracted 0.2% in the three-month period from January to March from the previous three months.

While that was an improvement on the previous quarter's 0.6% decline, it is another unwelcome landmark for the single currency bloc as it grapples with a debt crisis that has prompted a number of governments to introduce a raft of austerity measures.

This recession, though not as deep as the one in 2008, is the longest in the history of the euro, which was launched in 1999.

A recession is officially defined as two quarters of negative growth in a row.

There was also bad news today for the wider 27-country EU, which includes non-euro members such as Britain and Poland. 

It too is now officially in recession after shrinking by a quarterly rate of 0.1% in the first quarter, following a 0.5% drop in the previous period.

The euro zone has been shrinking since the fourth quarter of 2011. Initially it was just the countries at the forefront of its debt crisis, such as Greece and Portugal that were contracting.

But the malaise is now spreading to the so-called core. Figures earlier today showed Germany, Europe's largest economy, grew by a less-than-anticipated quarterly rate of 0.1%, largely because of a severe winter.

However, Germany's paltry growth still allowed it to avoid a recession following the previous quarter's 0.7% fall when orders for the country's high-value goods from its struggling euro neighbours declined.

France, Europe's second-largest economy, has not avoided that fate. On the first anniversary of Francois Hollande becoming president, figures showed that France contracted by a quarterly rate of 0.2% for the second quarter running.

The European Central Bank's promise to buy the bonds of struggling governments has removed the threat of a euro zone break-up, but the crisis that began in Greece in 2009 has seeped across the bloc to suck in the wealthy nations such as France.

EU leaders are already trying to shift away from the budget cuts that have dominated the response to the debt crisis since 2009, while the ECB cut the cost of borrowing to a new record low of 0.5% this month.

But the move is likely not to be enough to break a damaging cycle in which governments are cutting back spending, companies are laying off staff, Europeans are buying less and young people have little hope of finding employment.