Eurozone headed towards lengthy recession

Roddy Thomson (AFP)  from Brussels:

The eurozone veered towards a prolonged recession with new growth figures out on Tuesday showing its economy shrinking again and analysts warning of falling output right through 2013.

Germany posted better-than-expected growth of 0.3 percent between April and June, while No. 2 economy France just about scraped zero growth — but the experts saw precious little good news ahead, with the eurozone as a whole contracting by 0.2 percent.

“The big picture is that the economic growth required to bring the region’s debt crisis to an end is still nowhere in sight,” said London-based Jonathan Loynes of Capital Economics.

“The slowdown has spread from the periphery into the core,” said Tom Rogers, an analyst with Ernst & Young in London, one of many to highlight a systemic “north-south divide.”

“Positive readings in Germany and the Netherlands (0.2 percent) are to be welcomed, but with conditions in the rest of Europe deteriorating further, and export markets farther afield also cooling, it is looking increasingly likely that output in the core economies will contract during the second half of the year,” Rogers added.

Italy’s economy lost 0.7 percent during the quarter and Spain 0.4 percent, with the economic implosion in Greece continuing unabated — a 6.2 percent contraction after shrinking 6.5 percent in the first quarter of 2012.

These were to be expected, but, said Howard Archer of IHS Global Insight, it was “notable and worrying that GDP also contracted in Belgium and Finland,” by 0.6 percent and 1.0 percent respectively.

Tipping an overall GDP contraction for the eurozone in 2012 of 0.5 percent, he said IHS forecasts thereafter “are based on the assumption that Greece leaves the eurozone around mid-2013.”

“We expect a strong policy response to limit the fall-out but modest eurozone recession is still expected as a consequence in the second half of 2013,” Archer added.

Archer said the IHS team was forecasting a 0.2 percent contraction for next year as a whole.

Daniele Antonucci at Morgan Stanley was scarcely more optimistic, saying: “We expect the eurozone economy to shrink by 0.5 percent this year and to stagnate next year.”

The most recent forecast released by the European Commission in May anticipated growth of 1.0 percent for the eurozone next year.

The IMF last month revised its 2013 projection down to 0.7 percent growth, while ratings giant S&P and Ernst & Young each last month cut their estimates for next year to 0.4 percent.

Even in the days before Tuesday’s figures, Commerzbank economists said they “expect no growth until well into next year,” tipping “stagnation,” or zero growth, for 2013 as a whole.

A recession is commonly defined as two consecutive quarters of contracting activity.

The eurozone already posted flat growth in the first quarter of this year.

These latest flash estimates from the EU underscore how Europe is lagging well behind its main economic and trade rivals and partners, with comparative Eurostat figures saying GDP rose by 2.2 percent quarter-on-quarter in the United States and 3.6 percent in Japan.

“Only once the eurocrisis is back under control can a rebound in investment lead to a return to trend growth in core Europe,” said Christian Schulz of Berenberg Bank.

He highlighted Socialist-governed France, where imports now outpace exports, as the one to watch — floating in between the “north” of Germany and similarly-structured neighbouring economies such as Austria that are broadly holding on, and the tumbling economies of the south.

“In terms of economic confidence, it remains firmly part of core Europe, but it is losing competitiveness… France has to bring down its excessive public deficit eventually,” Schulz underlined.

French Finance Minister Pierre Moscovici, who must cut his country’s budget deficit from some 4.5 percent of GDP this year to the EU limit of 3.0 percent by the end of 2013, admitted the second-quarter result was “very weak,” but held to the government’s forecast for 0.3 percent growth in 2012.

He would not have appreciated notes figuring prominently on finance news streams from Barclays and UniCredit which pointed out that the official figure was actually rounded up to zero, whereas in reality it showed “negative” growth of 0.045 percent.

Germany held up thanks to exports and consumer spending, said Newedge Strategy analyst Annalisa Piazza, maintaining that its economy “remains relatively resilient” with only “limited” spillover from the euro crisis.

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