Eurozone economy shrinks by 0.2%

Business Materials 4 September 2008 02:34 (UTC +04:00)

The eurozone economy has contracted in the three months to June due to lower private spending and falling exports, adding to fears of a lasting slowdown. ( BBC )

The 15-nation area saw its economy shrink by 0.2% in the quarter compared with the previous three months, statistical office Eurostat said.

High fuel and food prices have dented consumer spending across Europe - one of the key drivers of the economy.

The euro fell to its lowest in eight months at $1.4386 after the data.

There are increasing fears across Europe that the region could be entering a recession and the latest figures showed that exports for the quarter slid 0.4%, while investments declined 1.2%.

Germany's deputy economy minister said the country had probably already fallen into its first recession in more than five years, and warned that the outlook was poor.

Germany - the largest economy in Europe - contracted by 0.5% percent during the second quarter.

During the same period, France and Italy shrank 0.3%, while the Netherlands saw zero growth.

Amelia Torres, a spokesperson for European Economic and Monetary Affairs Commissioner Joaquin Almunia said the data needed to be viewed in context.

"In the first quarter, growth was quite high and this was because we had a mild winter and a lot of construction continued."

"We paid in the second quarter for that," she said.

Unicredit economist Aurelio Maccario said the data showed the beginning of "a phase of prolonged weakness bound to last a few quarters".

Looking ahead, Eurostat revised downwards its forecast for the eurozone's annual growth from 1.5% to 1.4%.

The European Central Bank has the double challenge of fighting slowing economic growth while inflation quickens.

Many analysts expect it to keep interest rates on hold at its meeting on Thursday.