Eurozone economy contracts as world output slumps

14th August 2008, Comments 0 comments

German economy shrinks less than expected

Berlin -- The European economy shrank during the second quarter, fueling worries that the region's slowdown could gain momentum in the run-up to the end of the year.

The 15-member eurozone economy contracted by 0.2 percent during the three months before the end of June, the European Commission's Statistics Office Eurostat said Thursday.

The eurozone grew quarter on quarter at 0.7 percent during the first three months of the year. The second-quarter growth rate was in line with analysts' forecasts.

At the same time, year-on-year growth in the eurozone slipped back from 2.1 percent in the first quarter to 1.5 percent in the three months to the end of June, Eurostat said.

Earlier in the day the eurozone's two biggest economies also reported a contraction in the second quarter, with the German economy shrinking by a less-than-forecast 0.5 percent after the currency bloc's biggest economy grew at a revised 1.3 percent during the first quarter.

Nevertheless, it was the first fall in the German economy in almost four years.

Data showed economic growth in France slowing from 0.4 percent during the first quarter to a bigger-than-forecast 0.3-per-cent slump in the latest three months.

The second-quarter contraction in France represented the first time in about five years that the economy has shrunk in the eurozone's second biggest member.

However, recently a steady stream of gloomy economic sentiment surveys and downbeat economic numbers has helped to raise concerns about the outlook for the European economy.

Also overhanging the European economic outlook is the threat posed by high inflation.

Eurostat said annual consumer prices posted a 4-per-cent gain in July, down slightly down from its preliminary 4.1-per-cent estimate.

However, inflation in the eurozone remains at double the ECB's target of "close to, but just below 2 percent."

Comments last week from European Central Bank chief Jean-Claude Trichet that the eurozone economy faced weak growth in the coming months resulted in the euro suffering its biggest weekly drop, pushing the common currency down to near a six-month low against the greenback of about 1.50 dollars.

This also came amid fears that several eurozone economies which have been hit badly by the global financial market and credit crisis -- such as Spain, Ireland and Italy -- could be on the brink of recession.

Italy's statistics office said last week that the eurozone's third economy shrank by 0.3 percent quarter on quarter, resulting in zero growth on the year. This followed a 0.4-per-cent slump during the first quarter.

On Wednesday, Eurostat said eurozone industrial production slipped by 0.5 percent in June compared to the same month last year. Economists had predicted a modest 0.2-per-cent increase in June.

The economy in the 27-member European Union slipped by 0.1 percent during the second quarter to produce a year-on-year expansion rate of 1.7 percent.

This compared to a 0.7-per-cent growth rate during the first three months of the year. The EU clocked up a year-on-year expansion rate of 2.3 percent during the first quarter.

The EU's new member states again recorded the fastest growth rates in the Brussels-based bloc, with the economy in Slovakia, which is to become the eurozone's 16th member state in January, racing ahead by 1.9 percent during the second quarter.

Inflation in the EU stood at 4.4 percent in July, boosted by surging consumer prices among several new member states such as Latvia, where inflation stood at 16.5 percent, and in Bulgaria, which reported an annual 14.4-per-cent rate.

Quarter on quarter, the world's biggest economy, the US, grew by 0.5 percent in the three months to the end of June, while Japan's economy fell by 0.6 percent.

Year on year, the US economy expanded by 1.8 percent in the second quarter with Japan growing at 1 percent compared to the second quarter in 2007.

DPA with Expatica

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