Falling investment and consumers’ reluctance to spend even at Christmas were behind the eurozone’s slide deep into recession in the last three months of 2012, according to a second official estimate yesterday.
Economic output from the 17 nations sharing the euro fell 0.6 per cent in the fourth quarter of 2012, the EU statistics agency Eurostat said, confirming an earlier reading and giving a more detailed breakdown.
“This was the worse quarter in the recessionary cycle,” said Mads Koefoed, an economist at Saxobank. “The outcome of the Italian election increases uncertainty, but eurozone growth should come back towards the end of this year,” he said.
The data pointed to the vicious circle at the centre of the eurozone’s economic malaise. Governments are cutting spending, prompting businesses to freeze investment and lay off staff, in turn leaving households in no state to spend or provide the growth needed to reduce debt. While backward-looking, the numbers may also influence a monthly meeting of the European Central Bank’s Governing Council today.
The bank is not expected to cut rates this week to below 0.75 per cent, but a growing number of economists see a reduction in the cost of borrowing at some point this year, partly because inflation is no longer a threat in the eurozone.
The eurozone’s economy is expected to shrink 0.3 per cent this year, the European Commission says, and at least for the first and second quarters of 2013, the outlook remains poor.
Complicating matters, business surveys released on Tuesday highlighted the divide between Germany and the rest of the bloc.
The details of the GDP numbers showed Germany was the only major eurozone economy to grow in the fourth quarter, although growth slowed to a crawl, while France, Spain and Italy all contracted.
Overall, government spending made no contribution to GDP in the final quarter of 2012. A lack of spending by households shaved 0.2 percentage points from the quarterly GDP figure, and business investment also dragged down output by the same margin.