LONDON (AP) — The 17-country eurozone has fallen back into recession for the first time in three years as the fallout from the region's financial crisis was felt from Amsterdam to Athens.
And with surveys pointing to
increasingly depressed conditions across the 17-member group at a time
of austerity and high unemployment, the recession is forecast to deepen,
and make the debt crisis — which has been calmer of late — even more
difficult to handle.
Official figures Thursday showed that the
eurozone contracted by 0.1 percent in the July to September period from
the quarter before as economies including Germany and the Netherlands
suffer from falling demand.
The decline reported by Eurostat, the
EU’s statistics office, was in line with market expectations and follows
on from the 0.2 percent fall recorded in the second quarter. As a
result, the eurozone is technically in recession, commonly defined as
two straight quarters of falling output.
The eurozone economy
shrank at annual rate of 0.2 percent during the July-September quarter,
according to calculations by Capital Economics.
“The eurozone
economy will continue its decline in Q4 and probably well into 2013 too —
a good backdrop for another debt crisis,” said Michael Taylor, an
economist at Lombard Street Research.
Because of the eurozone’s
grueling three-year debt crisis, the region has been the major focus of
concern for the world economy. The eurozone economy is worth around €9.5
trillion, or $12.1 trillion, which puts it on a par with the U.S.. The
region, with its 332 million people, is the U.S.’s largest export
customer, and any fall-off in demand will hit order books.
While
the U.S has managed to bounce back from its own recession in 2008-09,
albeit inconsistently, and China continues to post strong growth,
Europe’s economies have been on a downward spiral — and there is little
sign of any improvement in the near-term. Last week, the European
Union’s executive arm forecast the eurozone’s economy would shrink 0.4
percent this year. Then only a meager 0.1 percent growth in 2013.
The
eurozone had avoided returning to recession since the financial crisis
following the collapse of U.S. investment bank Lehman Brothers, mainly
thanks to the strength of its largest single economy, Germany.
But
even that country is now struggling as exports drain in light of the
economic problems afflicting large chunks of the eurozone.
Germany’s
economy grew 0.2 percent in the third quarter, down from a 0.3 percent
increase in the previous quarter. Over the past year, Germany’s annual
growth rate has more than halved to 0.9 percent from 1.9 percent.
Germany’s Chancellor, Angela Merkel, tried to strike a positive note when she spoke to reporters in Berlin Thursday.
“I think we all are working on getting back on our feet again rapidly,” she said.
“We
see that economic growth is slowing, that overall we have a small drop
in the eurozone but I’m also very optimistic that if we do our political
homework … we will again have growth after this small decline.”
Perhaps
the most dramatic decline among the eurozone’s members was seen in the
Netherlands, which has imposed strict austerity measures. Its economy
shrank 1.1 percent on the previous quarter.
Five eurozone
countries are in recession — Greece, Spain, Italy, Portugal and Cyprus.
Those five are also at the center of Europe’s debt crisis and are
imposing austerity measures, such as cuts to wages and pensions and
increases to taxes, in an attempt to stay afloat.
As well as
hitting workers’ incomes and living standards, these measures have also
led to a decline in economic output and a sharp increase in
unemployment.
Spain and Greece have unemployment rates of over 25
percent. Their young people are faring even worse with every other
person out of work. As well as being a cost to governments who have to
pay out more for benefits, it carries a huge social and human cost.
Protests
across Europe on Wednesday highlighted the scale of discontent and with
economic surveys pointing to the downturn getting worse, the voices of
anger may well get louder still.
“The likelihood is that this
anger will continue to grow unless European leaders and policymakers
start to act as if they have a clue as to how to resolve the crisis
starting to unravel before their eyes,” said Michael Hewson, markets
analyst at CMC Markets.
Europe has no doubt made some progress
this year in allaying some of the worst fears in the markets, notably
through the announcement of new bond-buying program from the European
Central Bank. However, with Greece still teetering on the edge and the
eurozone in recession, the economic storms are never far away.
Mario
Draghi, the ECB’s president has been widely credited for helping foster
the more optimistic tone in the markets but he admits there’s still a
long way to go.
“The year that is about to end will be remembered
not only for the effects the European sovereign debt crisis has had on
the euro and for the significant weakening of the European economy, but
also for the responses to these challenges by the ECB, national
governments and the European Union,” he said in a speech at Univerisita
Bocconi in Milan.
“Ultimately, it is up to governments to dispel
once and for all the persistent uncertainties that markets perceive and
citizens fear,” Draghi added.
The wider 27-nation EU, which
includes non-euro countries, avoided the same recession fate as the
eurozone. Eurostat said the EU’s output rose 0.1 percent during the
third quarter, largely on the back of an Olympics-related boost in
Britain.
The EU’s output as a whole is greater than the U.S. It is
also a major source of sales for the world’s leading companies. Forty
percent of McDonald’s global revenue comes from Europe – more than it
generates in the U.S. General Motors, meanwhile, sold 1.7 million
vehicles in Europe last year, a fifth of its worldwide sales.
