The eurozone veered back toward recession with the latest growth figures out on Tuesday showing its economy shrinking by 0.2 percent and analysts warning of falling economic output right through 2013.
Germany steered clear of the worst of the debt crisis to post better-than-expected growth of 0.3 percent in the period from April to June, and France held on for zero growth, but the experts saw precious little good news going forward.
“The big picture is that the economic growth required to bring the region’s debt crisis to an end is still nowhere in sight,” said London-based Jonathan Loynes of Capital Economics.
“The slowdown has spread from the periphery into the core,” said Tom Rogers, an analyst with Ernst & Young in London, one of many analysts to highlight a growing “north-south divide.”
“Positive readings in Germany and the Netherlands (0.2 percent) are to be welcomed, but with conditions in the rest of Europe deteriorating further, and export markets farther afield also cooling, it is looking increasingly likely that output in the core economies will contract during the second half of the year,” Rogers added.
Italy’s economy lost 0.7 percent during the quarter and Spain 0.4 percent, with the economic implosion in Greece continuing unabated — a 6.2 percent contraction after a 6.5 percent contraction in the first quarter of 2012.
These were to be expected, but, said Howard Archer of IHS Global Insight, it was “notable and worrying that GDP also contracted in Belgium and Finland,” by 0.6 percent and 1.0 percent respectively.
Tipping an overall GDP contraction for the eurozone in 2012 of 0.5 percent, he said these countries “are being dragged down by the problems of Greece, Spain, Italy and Portugal.”
He said IHS forecasts thereafter “are based on the assumption that Greece leaves the eurozone around mid-2013.
“We expect a strong policy response to limit the fall-out but modest eurozone recession is still expected as a consequence in the second half of 2013,” Archer added, tipping a 0.2 percent contraction for next year too.
A recession is commonly defined as two consecutive quarters of contracting activity. The eurozone posted flat growth in the first quarter of this year.
The flash estimates from the EU also show how badly Europe now lags behind its main economic and trade partners, with comparative Eurostat figures saying GDP rose by 2.2 percent quarter-on-quarter in the United States and 3.6 percent in Japan.
“Only once the Eurocrisis is back under control can a rebound in investment lead to a return to trend growth in core Europe,” said Christian Schulz of Berenberg in a note issued in London.
He highlighted France as a case apart between Germany and similarly-structured neighboring economies such as Austria that are broadly holding on, and the tumbling economies of the south.
“In terms of economic confidence, it remains firmly part of core Europe, but it is losing competitiveness ... France has to bring down its excessive public deficit eventually,” he underlined.
Schulz noted France is continuing to lose competitiveness to southern eurozone countries going through difficult adjustments, with imports outpacing exports and taking the trade deficit to record highs.
French Finance Minister Pierre Moscovici, whose Socialist government has to cut its budget deficit from around 4.5 percent of GDP this year to the EU limit of 3.0 percent by the end of 2013, called the result “very weak” but held to the government’s forecast for 0.3 percent growth in 2012.
Germany’s economy grew fractionally faster than the 0.2 percent forecast by analysts, but slower than the 0.5 percent seen in the first quarter.
“Positive impulses came from both consumer spending and from net foreign trade,” national statistics office Destatis said.
Not all experts were gloomy for Germany’s prospects, Newedge Strategy analyst Annalisa Piazza stating that “the German economy remains relatively resilient and the expected effects of the eurozone debt crisis remained limited.”