KEY POINTS:
The eurozone economy is on the verge of its first recession after the economies of Germany, France and Italy all shrank in the second quarter of this year.
The overall 0.2 per cent fall in activity over the three months to June in the 15-nation single currency area was worse than the markets had expected, and helped to give the pound a rare boost against the euro. Sterling also stabilised, albeit at a 22-month low, against the dollar, after a week of dramatic falls. The EU revised July's rate of inflation for the eurozone down slightly, from 4.1 to 4 per cent.
The unexpectedly poor news on European growth came a day after the Bank of England hinted at the strong possibility of a recession in Britain over the next year, and added to a global round of bad news.
However, the fall in European GDP was still smaller than that revealed yesterday in the world's second biggest economy, Japan, which shrank 0.6 per cent in April to June. The United States recorded growth of 0.5 per cent, partly driven by tax cuts.
The upshot was that sterling bounced a little against the euro, which fell 0.4 per cent to 79.52p and, with little movement against the dollar after the dramatic falls earlier in the week, sterling edged off an 11-year low set the previous session, on a trade-weighted average basis.
But most focus yesterday was on the deteriorating prospects for eurozone countries. Although not as bad as a previous leak had suggested, the figure for Europe's largest economy, Germany, was nonetheless disappointing, with a 0.5 per cent quarterly contraction
France also reported a reduction in its national income, with GDP down 0.3 per cent on the previous quarter. Spain, suffering especially severely from a property crash, grew by just 0.1 per cent, hardly sufficient to make an impact on an unemployment rate of more than 10 per cent, the worst of Europe's major economies. The Dutch economy recorded zero growth.
Taken with a previously reported decline of 0.3 per cent in Italian economic activity, Eurostat says the overall eurozone GDP contraction was around 0.2 per cent on the quarter.
Forward indicators of economic growth point to a recession over the next three months.
Longer term, though, analysts were more optimistic about the eurozone than Britain or the US because of its more broadly based economy.
- INDEPENDENT
