EU: Debt crisis drags eurozone economy down 0.2pc

The Telegraph ^ | 8/14/2012 | Louise Armitstead

[bruinbirdman]

The eurozone was shown to be on the edge of a double-dip recession today, as even the powerhouse economies faltered in the face of the three-year-old debt crisis.

The combined economies of the 17-members contracted by 0.2pc in the three months from April to June, according to Eurostat, following zero growth in the first quarter.

News of the contraction came amid further speculation that Greece will push for a two-year extension of its latest austerity programme.

Germany managed 0.3pc growth, thanks to strong investment and domestic consumption, and the Netherlands posted an up-tick in production of 0.2pc. But the growth was no match for the contractions in Greece, Italy and Spain, particularly since the other northern economies also struggled.

France officially defied expectations of contraction and recorded zero growth. However, analysts said a closer look at the numbers showed output had in fact dropped marginally and the figure was -0.045pc before the numbers were rounded up.

Pierre Moscovici, the French finance minister, said the performance was “not excellent” but that France had not formally dipped into recession and government budget plans for next year remained “reasonable”.

Finland, one of the eurozone’s last remaining AAA-rated countries, and Germany’s staunchest ally on austerity, saw its economy shrink by 1pc.

Howard Archer, chief UK and European Economist at IHS Global Insight said: “[The contraction] confirmed that the eurozone is to all intents and purposes in recession, even if it has avoided the technical definition of two successive quarters of negative quarter-on-quarter GDP.” Economists warned that the eurozone could no longer rely on Germany to fuel its growth. Fresh data showed that German investor confidence had fallen to record low in August — down to minus 25.5 points from minus 19.6 last month.

Joerg Kraemer, chief economist at Commerzbank in Frankfurt,