A run of downbeat economic news today reinforced expectations that the euro zone's economy shrank during the last three months of 2011 as the government debt crisis weighed down even the biggest and richest countries.
During the final months of last year, financial turmoil in Europe intensified due to fears that the debt crisis was spreading from smaller economies like Greece to larger ones like Spain and Italy. hough those fears have subsided somewhat this year, they likely pushed the region's economy to the verge of another recession.
Analysts expect official figures due tomorrow morning from Eurostat, the EU's statistics office, to show that the euro zone's economy shrank by around 0.4% in the final three months of 2011 after growing only 0.1% in the third quarter. That would leave the euro zone with one foot in recession, which is officially defined as two consecutive quarters of economic contraction.
Indicators released today provided yet more evidence that the headline number will be negative - another poor set of euro zone industrial figures was accompanied by confirmation that Greece and Portugal remain mired in deep recessions.
Eurostat said that industrial production shrank by 1.1% in December. The decline was in-line with market expectations and confirmed that the recovery in the industrial sector, which has been largely behind the euro zone's overall recovery from recession over the past couple of years has stalled.
December's decline was the third monthly fall in four months. The industrial figures also provide mounting evidence that Germany's economy has been hit hard by the raging debt crisis around the euro zone.
While debt-crippled countries such as Greece and Portugal have seen their economies implode, Germany's has been buoyant as its high-end businesses have benefited from the rebound in global trade. German figures tomorrow are expected to show that Europe's largest economy shrank by around 0.3% during the fourth quarter following a 0.5% expansion in the previous quarter.
France's economy, Europe's second-largest, is also expected to contract, but by a more moderate 0.1%. Such declines would be dwarfed, however, by the scale of the recessions that continue to grip Greece and Portugal.
