Euro zone's economy heads towards recession

Thu Sep 6, 2012 7:06am EDT
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By Robin Emmott

BRUSSELS (Reuters) - Strong exports limited the euro zone's economic contraction in the second quarter of this year despite falling investment, inventories and private consumption that point to output shrinking overall in 2012.

The EU's statistics office Eurostat confirmed on Thursday that gross domestic product in the 17 countries using the euro fell 0.2 percent quarter-on-quarter. It revised the year-on-year fall to 0.5 percent from a previously reported 0.4 percent.

The debt crisis that began in Greece nearly three years ago has crushed Europe's efforts at recovery from the 2008/2009 global financial crisis, probably sending the bloc into recession for the second time in just three years.

"Weakness is the name of the game," said Joost Beaumont, a senior economist at ABN AMRO in Amsterdam. "We see another contraction in the third quarter because domestic demand will be hit by fiscal consolidation, rising unemployment, tight credit conditions and the high uncertainty of the euro zone crisis."

The euro zone would already be in a technical recession, were it not for flat output in the first three months of the year, after a 0.3 percent quarterly contraction in the last quarter of 2011.

Eurostat said a fall in household consumption subtracted 0.1 percentage point from the final quarterly GDP figure and shrinking investment and inventories took away 0.2 percentage points each, compared with the previous three months.

Strong exports, however, added 0.6 percentage point which, after the negative contribution of imports, left the net result from trade at a positive 0.2 percentage point.

With the Chinese economy slowing and the U.S. economy struggling to build a solid recovery, the euro zone cannot rely on exports to pull it out of the downturn, however.   Continued...

A European Union (E.U.) flag flutters in front of the monument of Parthenon on Acropolis hill in Athens June 17, 2012. REUTERS/John Kolesidis