Blow for eurozone as two major economies dip into recession

Two of the largest economies in the eurozone have fallen into recession, according to figures yesterday which also showed Germany had its first negative quarter since 2009.

Italy and the Netherlands both saw GDP shrink by 0.7 per cent in the fourth quarter of last year, marking the second consecutive quarter of economic contraction.

And the German economy suffered a decline of 0.2 per cent, the fall was lower than anticipated.

In France there was surprise growth of 0.2 per cent in the closing months of 2011, as manufacturers benefited from healthy export activity.

Across the 17-nation eurozone, there was a quarterly contraction of 0.3 per cent – a clear sign that Europe’s debt crisis has spared no country in the single currency bloc.

Howard Archer, chief UK and European economist at IHS Global Insight, said the eurozone had “stuck one foot back through the recession door” in the fourth quarter.

He added: “We doubt that the eurozone will be able to avoid further contraction in the first quarter and very possibly the second as well in the face of the ongoing pressures facing consumers and limited global growth.”

James Ashley, senior European economist at RBC Capital Markets, was more upbeat, saying: “It remains conceivable that the euro area might still escape from re-entering technical recession.”

How the global economy fares this year is likely to depend on how Europe deals with its debt crisis. Many institutes, including the International Monetary Fund, believe it remains the biggest risk to the global economic outlook.

Jennifer McKeown at Capital Economics said: “With Greece still on the edge of disaster and the fiscal crisis deepening, the eurozone economy faces enormous challenges.”

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