Euro Area Slips Into Recession Second Time in Four Years

By Marcus Bensasson - Nov 15, 2012 6:33 PM GMT+0800

The euro-area economy slipped into a recession for the second time in four years as governments imposed tougher budget cuts and leaders struggled to contain the debt crisis that broke out in October 2009.
Gross domestic product in the 17-nation single-currency bloc slipped 0.1 percent in the third quarter after a 0.2 percent decline in the previous three months, the European Union’s statistics office in Luxembourg said today. That’s in line with the median forecast in a Bloomberg News survey of 44 economists. From the year-earlier period, GDP dropped 0.6 percent.

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Greece published third-quarter GDP figures yesterday, which showed the economy contracting for a 17th straight quarter. Photographer: Angelos Tzortzinis/Bloomberg

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Nov. 15 (Bloomberg) -- Laurence Boone, chief European economist at Bank of America Merrill Lynch, talks about fiscal adjustments in Spain and Italy, and domestic consumption in France. She speaks with Manus Cranny on Bloomberg Television's "The Pulse." (Source: Bloomberg)

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Nov. 14 (Bloomberg) -- Myles Lee, chief executive officer of CRH Plc, talks about the impact of superstorm Sandy on U.S. infrastructure projects, the so-called fiscal cliff and emerging-market growth. He speaks with Francine Lacqua and Guy Johnson on Bloomberg Television's "City Central." (Source: Bloomberg)

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The euro has decreased 1.5 percent against the dollar this year, reflecting investors’ concern about ability of Europe’s policy to hold the currency bloc together. Photographer: Simon Dawson/Bloomberg

Europe’s economic malaise is deepening as governments across the region impose budget cuts to narrow their fiscal deficits. Spain and Cyprus have joined the list of countries seeking external aid, while Greece, Portugal and Ireland are already in bailout programs. Unions across the region have held protests against austerity measures.
“Overall I think it’s remarkable that we haven’t seen so far in the last year a stronger decrease in economic activity considering the strength of the euro-zone debt crisis,” said Alexander Krueger, chief economist at Bankhaus Lampe in Dusseldorf. “Stopping the downward trend is the story for the first half of next year.”

Slower German Growth

The euro pared gains after today’s data were released, trading at $1.2753 at 11:30 a.m. in Brussels, up 0.1 percent on the day. The Stoxx Europe 600 Index was down 0.6 percent.
In Germany, Europe’s largest economy, GDP rose 0.2 percent after a 0.3 percent gain in the previous three months. The French economy expanded 0.2 percent, rebounding from a 0.1 percent contraction in the second quarter. Italy and Spain contracted 0.2 percent and 0.3 percent, respectively. In the 27- country EU, GDP rose 0.1 percent.
Greece and Portugal published third-quarter GDP figures yesterday, which showed the Greek economy contracting for a 17th straight quarter and the Portuguese economy completing its second year in recession. By the end of this year Greek output will have dropped by a fifth since it entered its recession in 2008.
The European Commission last week cut its 2013 growth forecast for the euro-area economy to 0.1 percent, down from a May projection of 1 percent. The euro-area unemployment rate is at a record 11.6 percent.

‘Short-Term Weakness’

“The latest growth indicators around the world, as well as the high levels of unemployment in the EU, raise concerns about our economic prospects,” EU Economic and Monetary Affairs Commissioner Olli Rehn said yesterday. “The indicators point to further short-term weakness.”
Euro-area industrial production dropped 2.5 percent in September from the previous month, the most in more than three years, led by double-digit declines in Portugal and Ireland. German investor confidence unexpectedly declined in November, the ZEW Center for European Economic Research in Mannheim said on Nov. 13.
Siemens AG, the biggest engineering company in Europe, on Nov. 8 unveiled a 6 billion-euro savings plan to restore profitability, acknowledging it was slow to react to shrinking demand. Commerzbank AG, which is forgoing its dividend, on Nov. 8 reported profit that missed analysts’ expectations on losses from non-core assets and a decline in consumer banking earnings.
“As we’ve moved through the year we have seen some greater pressure coming on to some of the core European economies as well,” Myles Lee, chief executive officer of CRH Plc, a Dublin- based building materials company, said in a Bloomberg TV interview yesterday.