Page last updated at 11:49 GMT, Wednesday, 7 October 2009 12:49 UK

Eurozone economy shrinks by 0.2%

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France and Germany had seen return to growth in the first set of figures

Economic activity in the eurozone shrank by 0.2% between April and June - worse than originally thought - according to official figures.

The European Union's Eurostat agency had previously said the economy of the region had contracted by 0.1%.

But the revised figures showed Greece, Poland, Portugal and the Czech Republic have emerged from recession. France and Germany had already returned to growth.

The UK's economic contraction has already been revised to 0.6% from 0.8%.

Separately, the European Commission said that another nine EU nations were now breaking a key rule requiring them to keep budget deficits beneath 3% of GDP.

Growth expected

ANALYSIS
By Andrew Walker, Economics correspondent, BBC World Service

A total of 20 of the EU's 27 member countries are being taken to task over their government budgets.

It is a sign of just how severely public finances across Europe have been damaged by the global recession, which undermines tax revenue and leads to higher spending on unemployment benefits.

EU rules say the deficit should not exceed 3% of national income. If countries don't take corrective action they can be fined, although that has never happened before.

Only two countries - Britain and Hungary - were subject to action over their deficits a year ago. Since then the acute stage of the financial crisis led to a recession which undermined the finances of governments around the world.

The eurozone gross domestic product (GDP) figure - for the 16 countries that use the euro - for the April to June period showed the fifth consecutive quarter of economic contraction.

While the figure was worse than initially thought, it was a marked improvement on the 2.5% drop recorded in the first three months of the year.

Stronger exports and consumer spending, as well as government stimulus packages, contributed to the improvement.

The revised figure "does not materially change the picture," said chief IHS Global Insight analyst Howard Archer.

"It still seems likely that the region returned to growth in the third quarter, albeit modest."

For the entire 27-nation bloc, gross domestic product (GDP) fell 0.3% in the second quarter - slightly worse than the 0.2% estimate first given.

This took the annual rate of decline to 4.8%.

Revenue fall

Meanwhile, the European Commission said that Germany, Italy, the Netherlands, Austria, Belgium, Slovenia, Slovakia and Portugal had breached rules on budget deficits, as had the Czech Republic, which lies outside the eurozone.

The Commission said the deficits, while primarily due to the economic crisis, were not "exceptional and temporary".

The rules to keep debt and deficit within certain limits are designed to keep the finances of the 16 nations which use the euro in line, promoting the stability of the currency.

Other EU countries are also required to follow the rules on deficit and debt.

More countries are seeing their deficits widen as tax income falls while spending increases to rescue failing banks and fund benefit payments to the unemployed.



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