Euro, shares fall as euro zone recession deepens

Thu Feb 14, 2013 8:29am EST
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By Marc Jones

LONDON (Reuters) - The euro and shares fell sharply on Thursday after data showed the euro zone's two biggest economies shrank even more than expected late last year, throwing a first quarter regional recovery into doubt.

The German economy contracted 0.6 percent in the final quarter of 2012, marking its worst performance since the global financial crisis was raging in 2009. Exports, normally the motor of its economy, did most of the damage.

Overall the euro zone's 17-country economy shrank 0.6 percent, with France's 0.3 percent fall slightly worse than forecast.

Germany is expected to rebound but the figures suggest the bloc as a whole could remain in recession in the first quarter of this year, despite a recent jump in market sentiment as fears that the currency bloc could fall apart faded.

"These are horrible numbers. It's a widespread contraction, which does not match this positive picture of stabilization and positive contagion," said Carsten Brzeski, an economist at ING.

The data pushed the euro down 0.9 percent to $1.3324, its lowest in three weeks. European shares likewise fell, with Frankfurt .GDAXI and Milan .FTMIB losing more than 1 percent. Paris .FCHI and London .FTSE also suffered heavy drops, and the FTSEurofirst 300 index was 0.4 percent lower.

"We still expect growth to return in the course of 2013 but any return of growth will be very small which means that the social impact of this recession, especially in the peripheral countries, will be still a very severe one," Brzeski added.

German bonds rose as demand for traditional safe-haven assets returned. Bund futures were 55 ticks higher on the day at 142.60, having extended gains after Italian GDP figures also came in weak.   Continued...

A woman looks at an electronic board showing Japan's stock price index at the Tokyo Stock Exchange in Tokyo February 6, 2013. REUTERS/Toru Hanai