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Eurozone already sinking into recession, say analysts

The debt-laden eurozone is already sinking into recession with important markets such as Italy and the Netherlands shrinking, analysts said on Tuesday after the EU released stagnant new figures.

business Updated: Nov 16, 2011 00:15 IST

The debt-laden eurozone is already sinking into recession with important markets such as Italy and the Netherlands shrinking, analysts said on Tuesday after the EU released stagnant new figures.

Saved on this occasion by a summer pick-up in German consumer spending, the 17-nation currency area logged 0.2% growth between July and September - no change from the previous three months, the Eurostat data agency said.

However, the tiny increase “may well be as good as it gets for the eurozone in the near-term at least, as contraction looks highly possible in the fourth quarter and we suspect also the first quarter of 2012,” said London-based IHS Global Insight analyst Howard Archer.

Indeed, “we expect to see GDP contract by around 0.25% quarter-on-quarter in both the fourth quarter of 2011 and the first quarter of 2012,” he said.

Germany posted 0.5% and France 0.4%, despite the latter coming under growing pressure on bond markets, with a record spread on Tuesday between French interest rates and German benchmark yields.,

However, the Netherlands — a smaller but otherwise gilt-edged model eurozone economy — shrunk 0.3%, the Eurostat data agency said.

These figures compared with Eurostat’s estimation of 0.6% growth in the US — where different means of calculation make direct comparisons difficult — and 1.5% for Japan.

Chris Williamson, chief economist with London-based Markit which is a major player in economic survey data, said the signs were that there was no growth in Spain, and that the worst there is yet to come.

For Italy, he said survey data already “points to a decline,” with the rate of contraction “set to steepen dramatically in the fourth quarter.”

“Italy looks set to be the first of the four largest euro nations to slide back into recession,” he said. However, “the combination of weaker global demand, austerity measures and uncertainty caused by the sovereign debt crisis is also likely to cause downturns in both Germany and France.”

He said the outlook “largely rests in the hands of the politicians,” and said “swift action is needed to address the debt crisis and boost business and household confidence” for “a serious double-dip recession to be avoided.”