Eurostat, the EU’s statistics office, said Wednesday that nine of the 17 eurozone countries are in recession, with France a notable addition to the list. Overall, the euro region’s economy contracted 0.2 percent in the January-March period from the previous three months.
Though that’s an improvement on the previous quarter’s 0.6 percent decline, it’s another unwelcome landmark for the single currency bloc as it grapples with a debt crisis which has forced governments to slash spending and raise taxes.
These austerity measures have inflicted severe economic pain and social unrest. Unemployment across the eurozone is currently at a record of 12.1 percent — in some countries, such as Greece, it’s as high as 27.2 percent.
Though this recession is not nearly as deep as the one in 2008-9, it is the longest in the history of the euro, which was launched in 1999. A recession is officially defined as two straight quarters of negative growth.
“The eurozone is facing a double blow from necessary restructuring of its domestic economy and somewhat disappointing growth in world trade, in particular demand from emerging markets,” said Marie Diron, senior economic advisor to Ernst & Young.
There was also bad news for the wider 27-country EU, which includes non-euro members such as Britain and Poland. It too is now officially in recession after shrinking by a quarterly rate of 0.1 percent in the first quarter, following a 0.5 percent drop in the previous period.
With a population of more than half a billion people, the EU is the world’s largest export market. If it remains stuck in reverse, order books for companies in the U.S. and Asia will be hit. Last month, U.S.-based Ford Motor Company (NYSE:F) lost $462 million in Europe and called the outlook there “uncertain.”
Other major economies have faltered this year but none are in recession. The annualized contraction in the eurozone of around 0.9 percent contrasts with the equivalent expansion of the U.S. of 2.5 percent. Meanwhile, China, the world’s number 2 economy, is growing around 8 percent a year.
For many analysts, that discrepancy highlights Europe’s flawed economic approach since the end of the financial crisis. Instead of keeping the spending taps on — as the U.S. has largely done — the region concentrated on austerity even though companies and consumers weren’t able to plug the gap left by the retrenching state.
However, there have been some recent indications that Europe’s leaders are willing to ease up on their adherence to cuts and tax rises at a time of recession. Some countries, for example, are being given more time to meet certain economic and financial targets.
Despite the latest relaxation of some deficit-reduction targets — and an easing of concerns over the debt crisis in financial markets — most economists think the eurozone will remain in recession in the second quarter.
Growth is expected to emerge in the second half of the year — but it isn’t expected to amount to much. Many economists warn of a lost decade ahead for the eurozone similar to Japan. It, like the eurozone, has zigzagged its way in and out of recession over the past few years. In the fourth quarter of 2012, the last set of available figures, Japan’s economy was flat.
The eurozone’s recession since the fourth quarter of 2011. Initially it was just the countries at the forefront of its debt crisis, such as Greece and Portugal that were contracting.
But the malaise is now spreading to the so-called core countries. Figures Wednesday showed Germany, Europe’s largest economy, grew by a less-than-anticipated quarterly rate of 0.1 percent, largely because of a severe winter.
Germany’s paltry growth still allowed it to avoid a recession following the previous quarter’s 0.7 percent fall, when orders for the country’s high-value good from its struggling euro neighbors declined.
However, France, Europe’s second-largest economy, has not avoided that fate. On the first anniversary of Francois Hollande becoming president, figures showed that the country’s economy contracted by a quarterly rate of 0.2 percent for the second quarter running.
“We are in Europe, the eurozone countries are our main clients and our main suppliers, and when the environment around us is depressed, well, that’s the main factor in the slowing of the French economy,” French finance minister Pierre Moscovici said.
