Eurozone falls back into recession

The eurozone fell back into recession in the third quarter after the combined economy of the 17-member bloc contracted for the second consecutive month, dragged down by the Netherlands and peripheral nations.

Eurostat, the EU’s statistics office said the region’s economy contracted by 0.1 per cent in June to September, compared with the previous three months. This follows from a 0.2 per cnet decline in the second quarter.

The wider EU avoided recession after recording growth of 0.1 per cent in the third quarter, largely thanks to an Olympics-related boost in the UK.

Germany and France expanded in the third quarter, but the outlook remained bleak as the crisis engulfing the eurozone takes its toll on the region’s largest economies.

France escaped recession as its economy unexpectedly grew 0.2 per cent in the three months ending September from a revised 0.1 per cent contraction in the previous quarter, said Insee, France’s national statistics agency.

Meanwhile, German economic growth slowed in the same period, meeting analysts’ forecasts, adding to evidence that Europe’s largest economy is flagging on the back of the crisis. GDP rose 0.2 per cent after growing 0.3 per cent in the second quarter.

There was little optimism about future growth. Andreas Rees, chief German economist at UniCredit, said that the latest data should be taken “with a pinch of salt” as the deepening recession in several eurozone countries will continue to have a negative impact on German manufacturing and exports.

“On average, our growth forecast [for Germany] remains on track with economic activity remaining flat or even shrinking slightly in the second half of this year,” he said.

The Netherlands, the eurozone’s fifth-largest economy, suffered much more than expected in the third quarter, contracting 1.1 per cent from the previous three months. Many economists had expected a contraction of about 0.2 per cent.

Economists said that Germany and the Netherlands were being affected by the deepening recession in the southern European countries as GDP growth continued to contract in Greece, Portugal and Spain.

The spillover of the debt crisis that has engulfed Europe’s peripherywas also evident from eurozone industrial production data, which fell at the fastest rate in three years in September, down 2.5 per cent from August.

France’s slight increase in economic activity – the first spout of economic growth for a year – provides little respite in a country suffering from rising unemployment, depressed business sentiment and contracting industrial output.

“France’s GDP rise is certainly surprising and somewhat at odds with the general tone of the surveys and data,” said Howard Archer, economist at IHS Global Insight. “The rise in consumer spending seems unlikely to be sustained given high and rising unemployment, low confidence and an increasing fiscal squeeze so we suspect there will be French contraction in the fourth quarter.”

The International Monetary Fund warned this month that France risks falling behind crisis-hit Italy and Spain unless it pushed through key reforms to boost competitiveness and stimulate its ailing economy.

President François Hollande, who has come under mounting criticism for being ineffective at managing the French economy, vowed late last month to stem the country’s industrial decline by taking urgent action, including cutting high labour costs.