Eurozone economy hits official record contraction

The eurozone economy contracted a record 2.5 per cent in the first quarter and 4.8 per cent over 12 months as the recession bit in Europe, official data showed yesterday.

While the quarterly record low confirmed figures released last month, notably due to falls in exports and investments, the 12-month rate of economic contraction was bigger than the original estimate of 4.6 per cent.

Both cases show that the downturn is the sharpest for the 16-nation eurozone since records began in 1995, the Eurostat statistics agency said.

The picture was similar for the 27-nation European Union as a whole, which saw a quarterly decline in gross domestic product of 2.4 percent and contraction over 12 months of 4.5 per cent.

The first quarter GDP figures are a reminder that, although various surveys tentatively suggest that the eurozone economy may have already passed the absolute trough of this recession, this is anything but a V-shaped recovery," warned Daniele Antonucci, European Economist at London-based Capital Economics.

"Unsurprisingly, the breakdown revealed that net exports, investment and inventories were the main factors behind the 2.5 per cent quarterly contraction. True, an improvement on these fronts is likely going forward, but we don't believe that this will pull the eurozone economy strongly out of recession while global demand remains weak," he added.

The eurozone countries have now endured four consecutive quarters of economic contraction.

Europe plunged last year into its deepest post-war recession as international trade collapsed and consumers grew wary of spending on all but essentials in the face of the worst financial crisis in generations.

Although the downturn first took hold in the United States, it is hitting harder in Europe. The US economy shrank 1.5 per cent in the first quarter and 2.5 per cent over one year, according to comparative figures given by Eurostat.

Eurostat was even obliged to revise downwards some already depressing estimates for 2008.

Thus the contraction for the fourth quarter of last year was revised to 1.8 per cent from 1.6 per cent, while the second and third quarter figures were both marked down to 0.3 per cent GDP falls from the previously published 0.2 per cent.

Nevertheless, signs that the slump may be stabilising have emerged since the first quarter, despite the painful toll on the labour market which has brought fresh waves of job losses almost daily.

In another sign that the recession was at least bottoming out, eurozone business activity hit an eight-month high thanks to a record rise in May, a separate survey showed yesterday.