Recession storms across Europe

France led a string of European countries entering recession yesterday as Germany, the continent's economic powerhouse, registered its worst performance on record in the first quarter.

As Asia's biggest economy, Japan, faced signs of mounting deflationary pressures, the gloomy data from Europe cast a pall over recent claims that the first green shoots of recovery had been sighted.

However, Europe's leading stock markets rose at the open, with analysts saying the rises reflected an expectation that the crisis was bottoming out.

France became the last of the major European Union countries to dip into recession when figures from the official statistics agency INSEE, showed French gross domestic product shrank 1.2 per cent in the first quarter of 2009 after falling by 1.5 per cent in the final quarter of last year.

A recession is usually defined as two quarters of negative growth.

INSEE also updated its figure for French growth in 2008, reporting that the economy had grown by only 0.3 per cent last year rather than the 0.7 per cent it had earlier offered as an estimate.

The French government expects the economy to shrink by around three per cent this year, as the world financial crisis stifles credit and saps demand.

Meanwhile, France's neighbour and main trading partner Germany said its recession deepened in the first quarter, when the economy shrank by 3.8 percent, its strongest contraction since quarterly records began in 1970.

Germany, Europe's biggest economy and which accounts for a third of eurozone output, contracted by 3.8 per cent in the first three months of the year compared to the final quarter of 2008, the statistics office said.

Official figures made equally depressing reading from other parts of central Europe, including Austria which slid into recession after its economy contracted by 2.8 per cent in the first three months of the current year.

Romania also joined the recession club when its economy shrank by 2.6 per cent in the first quarter while the economies of Italy, Slovakia and Hungary all recorded negative growth figures.

Despite the grim growth figures, Europe's main stock markets rose as investors looked forward to a prospective recovery, dealers said.

London's FTSE 100 index of top shares gained 0.75 per cent to stand at 4,395.11 points in early trade while in Paris the CAC 40 was up 0.72 per cent and Frankfurt's DAX 30 advanced 0.40 per cent.

"This time around, the worst really seems to be over," said Carsten Brzeski, an analyst at ING bank, citing other more positive forward-looking economic indicators for the German economy despite its first-quarter contraction.

"Looking ahead, the second quarter has the potential to surprise to the upside," boosting stock markets, he said.

Japanese share prices closed up 1.88 per cent, mirroring gains on Wall Street as investors eyed prospects for an economic recovery.

The rises came despite mounting concerns that the world's number two economy may be facing a repetition of its 1990s deflationary spiral when falling prices led to weak consumer spending.

Central bank figures showed wholesale prices fell 3.8 per cent in April from a year earlier, the steepest drop in 22 years.

Consumer price inflation turned negative in March for the first time in 18 months and the fear is that Japan may see a repeat of its 1990s deflationary spiral when falling prices led to weak consumer spending.

However, Finance Minister Kaoru Yosano said there were signs the recession was abating with Japan's core machinery orders falling 1.3 per cent in March from the previous month, less than expected.

"I welcome some signs of easing in the economic slowdown. But we need to remain alert about overall economic conditions," he told reporters.

US Treasury Secretary Timothy Geithner said earlier this week the financial system "is starting to heal" as a response to government efforts to get more credit flowing, including moves to clean up so-called "toxic assets" that are weighing on banks' ability to lend.