Eurozone enters first recession

Eurozone enters first recession

The eurozone has fallen into its first recession, official figures showed on Friday. The decline came even before the global financial market crisis worsened in October, adding to fears of worse to come.

Gross domestic product in the 15-country region contracted by 0.2 per cent in the three months to September after a similar drop in the previous quarter. Italy joined Germany and Ireland in reporting that it was in technical recession, defined as two quarters of declining GDP.

Since the end of the third quarter, eurozone economic activity is thought to have plummeted further as a result of the shockwaves from the Lehman Brothers failure in mid-September, especially on the corporate sector.

Last month’s industrial production was almost 5 per cent lower than a year before – the sharpest annual decline since 1993, said Chris Williamson, economist at Markit, which produces purchasing mangers’ indices for the region. “October was quite a disastrous month all round,” he said, predicting that fourth quarter eurozone GDP would fall by at least 0.3 per cent.

Underlining the scale of the global turmoil on Europe’s biggest economies, it emerged that General Motors’ Adam Opel unit was seeking loan guarantees from the German federal government and four states where it has plants to protect its business from its US parent’s worsening finances.

The European Central Bank is expected to cut its main interest rate again next month from 3.25 per cent, after already cutting by half a percentage point twice in a month. Marco Annunziata, chief economist at Unicredit, said the eurozone was in recession in July when the ECB raised rates to a seven-year high of 4.25 per cent.

“We now have painful proof that there has been an excessive degree of complacency, which implies the policy response in Europe is well behind the curve,” Mr Annunziata said.

France offered some brighter news, saying it had escaped recession after a 0.1 per cent rise in GDP in the third quarter, following a 0.3 per cent contraction in the previous three months. Growth was supported by consumer spending.
Eurozone growth has been hit by high energy and official borrowing costs, a strong currency, the effects of the financial market crisis and falling global growth prospects.