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Euro zone slows as core states stumble

business Updated: Aug 16, 2011 23:01 IST

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The euro zone economy slowed sharply in the second quarter, hobbled by sluggish growth in Germany and stagnation in France, raising fears of a longer-term dip that could derail efforts to resolve the bloc's debt crisis.

The 17-nation single currency area grew by just 0.2% on a quarterly basis, data showed on Tuesday, a touch under forecasts and well below first quarter growth of 0.8%.

The slowdown gripped the bulk of the region, with growth in the bloc's powerhouse Germany sinking to just 0.1% in seasonally adjusted terms, its weakest in more than two years and slipping from a downwardly revised 1.3% in the first three months. That put the area's top two economies on the back foot, with figures last week showing French output stagnated in the second quarter.

The picture was equally grim for the region's high debtors -particularly Greece, Italy, Spain, Portugal and Ireland - where little or no growth means make debt-cutting targets will be even harder to achieve as tax revenues shrink and welfare payments rise.

Spain, one of the countries facing market attack over its debt burden, grew just 0.2%, reviving concerns it could slip back into recession. Growth was zero in neighbouring Portugal, sparing the beleaguered bailout recipient a further contraction thanks only to a bounce in exports. Only Austria bucked the trend, expanding by 1.0%.