Eurozone slides into recession

15 November 2012 Last updated at 06:57 ET

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 and the Republic of Ireland 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."

'Dangerous situation'

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

"We are now getting into a double dip recession which is entirely self-made," said Paul De Grauwe, a professor at the London School of Economics. "It is a result of excessive austerity in southern countries and unwillingness in the north to do anything else.

"This divide, even hostility, between countries is stronger than I have seen in the last 20 years. The degree of austerity has now put so many people in terrible conditions that they reject all of this. That's a very dangerous situation."

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 said Thursday.

The production of goods and services in France, Europe's second-largest economy, increased "after five quarters of near stagnation", it 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%, adding to signs that the previously-healthy north of Europe is suffering as the southern parts push through more austerity cuts in weak economies.

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.

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

How some eurozone economies are faring
	Q4 2011	Q1 2012	Q2 2012	Q3 2012
Source: Eurostat; figures show % change compared with previous quarter
Eurozone	-0.3	0	-0.2	-0.1
Germany	-0.1	0.5	0.3	0.2
France	0	0	-0.1	0.2
Italy	-0.7	-0.8	-0.7	-0.2
Spain	-0.5	-0.3	-0.4	-0.3
Netherlands	-0.6	0.2	0.1	-1.1
Portugal	-1.4	-0.1	-1.1	-0.8

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.

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.

"The negative data seen in recent weeks and months could very well lead to negative growth" in Germany in the fourth quarter of the year, said analysts at Natixis Bank.

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, 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.

How are countries outside the eurozone doing?
	Q4 2011	Q1 2012	Q2 2012	Q3 2012
Source: Eurostat based on the respective national statistics agencies; figures show % change compared with previous quarter
US	1	0.5	0.3	0.5
UK	-0.4	-0.3	-0.4	1
Japan	-0.3	1.3	-0.1	-0.9

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