Eurozone contracts by more than forecast in Q1

The eurozone was stuck in recession after a weak performance by the region’s two biggest economies – Germany and France – resulted in the currency bloc contracting more than forecast in the first quarter, data released on Wednesday showed.

The currency bloc’s economy shrunk 0.2 per cent compared with the fourth quarter after contracting 0.6 per cent in the final three months of 2012, the EU statistics office, Eurostat, said.

Analysts had expected the data would show the 17-member eurozone shrinking by 0.1 per cent in the first quarter.

“The effects of a weak start will weigh on the average annual growth rate, and we do not expect a rapid pick-up in activity any time soon,” said Clemente de Lucia, economist with France’s BNP Paribas banking group.

A meagre 0.1-per-cent growth rate posted by Germany failed to offset ongoing recessions in the eurozone’s other leading economies, such as Spain and Italy, which have been at the centre of the eurozone debt crisis.

France also lurched back into recession for the second time since the global economic downturn of 2009 as the region’s second-biggest economy rolled out tough fiscal reforms aimed at cutting high deficit and debt levels.

The French economy shrunk 0.2 per cent after contracting by the same amount in the last three months of 2012. Economists define a recession as two consecutive quarters of negative growth.

Compared with the first quarter of last year, seasonally adjusted gross domestic product (GDP) fell by 1 per cent in the eurozone after a year-on-year drop of 0.9 per cent in the fourth quarter, Eurostat said.

Fears that the eurozone could face another year of recession resulted in the European Central Bank cutting interest rates this month to a record low of 0.5 per cent.

Still, Wednesday’s figures showed the recession easing from the end of last year.

Germany narrowly escaped recession as it entered 2013 after it bounced back from a 0.7-per-cent contraction in the fourth quarter.

Analysts had expected an expansion of 0.3 per cent in the first three months of the year, but the German statistics office pointed to protracted winter weather as slowing the nation’s economy.

Spain posted a first-quarter contraction in gross domestic product of 0.5 per cent after 0.8 per cent in the previous quarter.

After contracting 0.9 per cent in the fourth quarter, the Italian economy pulled back 0.5 per cent in the first three months of the year. But it was the seventh-consecutive quarter of negative growth for the eurozone’s third-largest economy. The contraction was also larger than the 0.3-per-cent slump expected by economists.

Greece’s economy output shrank 5.3 per cent in the first quarter, the Hellenic Statistical Authority said. The economy, in recession since 2008, is expected to contract by about 4.5 per cent of GDP this year.

The troubled island state of Cyprus, which negotiated an international bailout in March for its ailing banking sector, sunk deeper into economic crisis with its economy contracting 1.3 per cent in the first quarter.

The International Monetary Fund late on Wednesday approved a three-year, >1.3-billion-dollar loan to support Cyprus ’ attempts to stabilize its financial sector, bring the government’s deficit under control and restore economic growth, part of a 10-billion-euro ($12.9-billion) rescue package forged in March with the eurozone’s bailout fund.

The IMF loan includes an immediate disbursement of 110.7 million dollars, bringing to about 2.7 billion dollars the sum delivered this week by Cyprus’ international lenders.

Portugal, which was also forced to turn to the EU bailout fund about two years ago, contracted 0.3 per cent in the first quarter, an improvement on the 1.8 per cent at the end of 2012.

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