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Eurozone slides back into recession

Central bank president Mario Draghi admits there’s a long way to go.

Associated Press

Central bank president Mario Draghi admits there’s a long way to go.

LONDON — The 17-country eurozone has fallen back into recession for the first time in three years as the fallout from the region's financial crisis was felt from Amsterdam to Athens.

And with surveys pointing to increasingly depressed conditions across the 17-member group at a time of austerity and high unemployment, the recession is forecast to deepen and make the debt crisis — which has been calmer of late — even more difficult to handle.

Official figures Thursday from Eurostat, the EU's statistics office, showed that the eurozone contracted by 0.1 percent in the July-to-September period from the quarter before as economies including Germany and the Netherlands suffer from falling demand.

The eurozone economy shrank at annual rate of 0.2 percent during the July-September quarter, according to calculations by Capital Economics.

"The eurozone economy will continue its decline in Q4 and probably well into 2013 too — a good backdrop for another debt crisis," said Michael Taylor, an economist at Lombard Street Research.

Because of the eurozone's grueling three-year debt crisis, the region has been the major focus of concern for the world economy. The eurozone economy is worth around $12.1 trillion, which puts it on a par with the United States. The region, with its 332 million people, is the United States' largest export customer, and any falloff in demand will hit order books.

While the U.S. has managed to bounce back from its own recession in 2008-09, albeit inconsistently, and China continues to post strong growth, Europe's economies have been on a downward spiral — and there is little sign of any improvement in the near-term.

The eurozone had avoided returning to recession since the financial crisis following the collapse of U.S. investment bank Lehman Brothers, mainly thanks to the strength of its largest single economy, Germany.

But even that country is now struggling as exports shrink in light of the economic problems afflicting large chunks of the eurozone.

Germany's economy grew 0.2 percent in the third quarter, down from a 0.3 percent increase in the previous quarter. Over the past year, Germany's annual growth rate has more than halved to 0.9 percent from 1.9 percent.

Perhaps the most dramatic decline among the eurozone's members was seen in the Netherlands, which has imposed strict austerity measures. Its economy shrank 1.1 percent on the previous quarter.

Five eurozone countries are in recession: Greece, Spain, Italy, Portugal and Cyprus. Those five are also at the center of Europe's debt crisis and are imposing austerity measures, such as cuts to wages and pensions and increases to taxes, in an attempt to stay afloat.

As well as hitting workers' incomes and living standards, these measures have also led to a decline in economic output and a sharp increase in unemployment.

Spain and Greece have unemployment rates of over 25 percent. Their young people are faring even worse, with every other person out of work. As well as being a cost to governments who have to pay out more for benefits, it carries a huge social and human cost.

Protests across Europe on Wednesday highlighted the scale of discontent and with economic surveys pointing to the downturn getting worse, the voices of anger may well get louder still.

"The likelihood is that this anger will continue to grow unless European leaders and policymakers start to act as if they have a clue as to how to resolve the crisis starting to unravel before their eyes," said Michael Hewson, markets analyst at CMC Markets.

Eurozone slides back into recession 11/15/12 [Last modified: Thursday, November 15, 2012 11:13pm]

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