Page last updated at 17:02 GMT, Friday, 14 November 2008

Eurozone officially in recession

Euro symbol
The financial crisis has hit the eurozone worse than had been expected

The eurozone has officially slipped into recession after EU figures showed that the economy shrank by 0.2% in the third quarter.

This follows a 0.2% contraction in the 15-nation area in the previous quarter from April to June.

Two quarters of negative growth define a technical recession.

The news was widely anticipated and follows data showing that Germany and Italy, two of the biggest eurozone economies, are already in recession.

BBC Berlin correspondent Steve Rosenberg said the figures were not a surprise.

Looking ahead, we can expect further quarters of negative GDP growth, until the third quarter of 2009
Gilles Moec, senior economist, Bank of America

"The Germans had their gloomy economic news [on Thursday] and as Germany is the dynamo of the European economy, when there are problems there, it drags the rest of the region down with it," he said.

It is the first recession the region has seen since the euro's creation in 1999.

But analysts forecast worse to come for the countries that use the euro.

"Looking ahead, we can expect further quarters of negative GDP growth, until the third quarter of 2009, simply because so far we have not had in the GDP figures the full impact of the credit market crisis," said Gilles Moec, senior economist, Bank of America.

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"We also haven't yet seen the full impact of unemployment on consumer spending," he added, forecasting that the eurozone region will shrink by 1% next year.

European blues

The gloomy forecasts are being fuelled by the uncertainty relating to the financial panic and slowing exports exacerbated by the strengthening euro against the dollar and pound.

Eurozone GDP 2

Carmakers - major European employers - are suffering particularly badly with data from the European carmakers' association, Acea, showing car sales down 14.5% in October for the sixth month in a row.

The sharp decline in exports has winded Germany - one of the world's largest economies - with data out on Thursday showing it had shrunk 0.5% in the third quarter, following a 0.4% drop in the second quarter.

The Italian and Spanish economies followed suit, also shrinking in the third quarter. For Spain, it was the first such drop since 1993.

Analysts are now convinced that a slump in household spending and a property crisis are likely to push the Spanish economy into recession as well, in the next quarter.

Much to the surprise of most analysts, France's economy bucked the trend and expanded in the third quarter, supported by consumer spending and company investment.

Official data showed that the French economy grew by 0.1% in the June to September period.

More interest rate cuts?

If the biggest eurozone economies are in recession, smaller countries are having even more difficulties
Liliana Jarmela, Portugal

The European Central Bank this month lowered its key interest rate to 3.25% to kick-start the eurozone's flagging economy and more cuts are expected as it becomes clearer that inflation risks are now retreating.

The Eurostat statistics agency said that annual inflation had come down to 3.2% in October from 3.6% in September, as oil prices have more than halved since reaching a peak above $147 a barrel in July.

Some analysts are predicting they could go as low as 2% - the same level they stood when the eurozone was formed in 1999.

Meanwhile, the wider European Union (EU), made up of 27 countries, is also in danger of slipping into a recession with the region's output shrinking by 0.2% in the third quarter, after flat growth in the previous three months.

Charles Dallara, Institute of International Finance: "We are still in a fragile environment"

The UK is expected to join the roll-call of European countries in recession with a bleak Bank of England forecast earlier this week suggesting that Britain is already there.

Despite a week's worth of grim data, European stock markets rose.

The UK's FTSE 100 climbed as much as 3.6% before paring earlier gains to close up 1.5% at 4,233 while the German Dax and the French Cac also posted modest gains.

The member states of the eurozone are France, Italy, Germany, Belgium, the Irish Republic, the Netherlands, Luxembourg, Spain, Portugal, Slovenia, Malta, Greece, Austria, Finland and Cyprus.

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