Eurozone officially in recession

Business Materials 14 November 2008 15:30 (UTC +04:00)

The eurozone has officially slipped into recession after EU figures showed that the economy shrank by 0.2% in the third quarter.

This follows a 0.2% contraction in the 15-nation area in the previous quarter from April to June, reported BBC.

Two quarters of negative growth define a technical recession.

The news was widely anticipated and follows data showing that Germany and Italy, two of the biggest eurozone economies, are already in recession.

The BBC correspondent in Germany, Steve Rosenberg, said the figures were not a surprise.

"The Germans had their gloomy economic news [on Thursday] and as Germany is the dynamo of the European economy, when there are problems there, it drags the rest of the region down with it," he said.

On Thursday, figures showed the German economy, one of the world's largest, had shrunk 0.5% in the third quarter, following a 0.4% drop in the second quarter.

Spain's economy also shrank in the third quarter, the first such drop since 1993. Analysts are now convinced that a slump in household spending and a property crisis are likely to push the Spanish economy into recession as well next quarter.

The UK is expected to join the roll call of European countries in recession with a bleak Bank of England forecast suggesting that Britain is already there.

France is not faring too much better, but its economy did manage to expand in the third quarter much to the surprise of most analysts.

Official data showed that the French economy grew by 0.1% in the June to September period.

But analysts forecast worse to come for the countries in the region that use the euro.

With inflationary risks retreating, many expect further aggressive cuts in interest rates from the European Central Bank, with some predicting they could go as low as 2% - the same level they stood when the eurozone was formed in 1999.

"Looking ahead, we can expect further quarters of negative GDP growth, until the third quarter of 2009, simply because so far we have not had in the GDP figures the full impact of the credit market crisis," said Gilles Moec, senior economist, Bank of America.

"We also haven't yet seen the full impact of unemployment on consumer spending," he added, forecasting the eurozone region to shrink by 1% next year.

The member states of the eurozone are France, Italy, Germany, Belgium, the Irish Republic, the Netherlands, Luxembourg, Spain, Portugal, Slovenia, Malta, Greece, Austria, Finland and Cyprus.