Eurozone GDP contracted by 0.2% over the second quarter of 2012 compared with the first three months of this year, figures released by Eurostat revealed yesterday.
But there was a sharp contrast in performance between the northern European and southern European countries.
Germany posted a robust 0.3% growth over the three month period. The Netherlands grew by 0.2% and France registered a 0% growth rate. Finland was alone among the eurozone creditor countries to see a contraction of 1%.
However, all of the main southern European eurozone members saw a contraction in their economies: Italy by -0.7%; Spain -0.4% and Portugal -1.2%.
“The widening divergences between northern and southern Europe can be explained by a number of factors,” said Martin van Vliet, a Brussels-based economist with ING Bank.
“First, the Northern economies are generally less affected by the financial turmoil that has gripped the euro region — in some cases — Germany — they also benefit from low interest rates due to flight-to-safety effects.
“Moreover, they are not suffering to the same extent from the fiscal austerity and private sector deleveraging that is depressing domestic demand in the periphery,” he said.
“Finally, ‘core’ economies, especially the more export-reliant ones such as Germany and the Netherlands, may be benefiting more from the euro weakness that has accompanied the crisis.”
Since the sovereign debt crisis erupted across the eurozone two years ago, bailout countries, including Ireland, have been forced to introduce swingeing austerity measures to stabilise their debt positions.
But there has been a backlash against this approach over the past number of months by Italy and Spain. They have called for a greater sharing of the burden of readjustment among eurozone member states. An EU summit in October will look at proposals for a banking union.
Until there is a comprehensive solution to the debt crisis, the region is likely to remain mired in recession.
“Looking ahead, the ongoing recession in large parts of the periphery will continue to hold back eurozone growth,” said Mr van Vluet. “Leading indicators suggest there is a fair chance that the eurozone economy might contract further in Q3 and hence enter a technical recession.
“Our base case scenario is still for a gradual return to modestly positive eurozone growth from the fourth quarter onwards. But any recovery will likely remain sluggish and fragile.
“There are a lot of things that could go wrong on the crisis resolution front that could derail the envisaged recovery.”
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