Germany’s economy crept back into growth at the start of the year but not by enough to stop the eurozone from contracting for a sixth straight quarter, and France slid into recession.
Falling output across the bloc meant the 17-nation economy is in its longest recession since records began in 1995, with nine of the 17 eurozone countries in recession. It shrank 0.2% in the January to March period, the EU’s statistics office Eurostat said, worse than the 0.1% contraction forecast by a Reuters poll.
“The misery continues,” said Carsten Brzeski, a senior economist at ING in Brussels. “Almost all core countries bar Germany are in recession and so far nothing has helped in stopping this downward spiral.
As well as France, the economy shrank for the quarter in Finland, Cyprus, Italy, the Netherlands, Portugal and Greece. Data last month showed Spain’s economy contracted for a seventh consecutive quarter.
Germany, which generates almost a third of the eurozone’s economy, grew by a weaker than expected 0.1%, skirting the recession that France succumbed to, but highlighting the devastating impact of the eurozone’s debt and banking crisis that has driven unemployment to a record 19 million people.
France’s downturn was its first in four years, after contracting by 0.2% in the first three months of the year, as it did in the last quarter of 2012. Italy, the eurozone’s third largest economy, reported its seventh consecutive quarter of decline, the longest since records began in 1970.
The eurozone’s recession is now longer than the five quarters of contraction that followed the global financial crisis in 2008/2009, although it is not as deep.
The ECB cut rates to a record low earlier this month and its head, Mario Draghi, said it was ready to act again if the economy worsened.
Some EU leaders, who meet for a summit in Brussels next week are also trying to shift away from the budget cuts that have dominated the response to the debt crisis since 2009.
But it will be tough for another rate cut and a softening of austerity — even if either happens — to break a cycle in which governments are cutting spending, companies are laying off staff, consumers are buying less and young people cannot find work.
Interest rates at a record low and the ECB’s promise to buy the bonds of struggling governments have calmed talk of a eurozone break-up, driving up equities and cooling bond yields.
But the reality for companies and households is of tight credit and frozen investment, meaning demand in places such as China and the United States is the best hope for renewed growth.
Italian and French leaders have been vocal in calling for an end to austerity and European Commission President Jose Manuel Barroso has said it has reached the limits of public acceptance.
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