Europe is in a mild recession at the moment, Economics Commissioner Olli Rehn said as Eurostat cut its estimate for growth in the EU and eurozone for last year, suggesting the much-forecasted double dip.
Mr Rehn’s statement in Paris suggests that the drop in growth in the last quarter of last year is continuing in the first quarter of 2012, although he said there were signs of stabilisation in the economy.
Continuing the positive trend, Mr Rehn said the banking sector was recovering and the risk of a credit crunch in the real economy had been prevented, stress in sovereign bond markets had eased and this had all helped to boost investor confidence.
He predicted: “We will witness the turning of the tide in the coming months.”
He also appeared optimistic about boosting the firewall of the EU’s rescue funds and so prompting the IMF to increase its resources.
The markets appeared to agree with his up-beat predictions when the EU’s EFSF bailout fund attracted double the amount of bids for its auction of €3.443bn worth of three-month bonds at an average yield of 0.0516%.
Based on returns from all member states with the exception of three eurozone countries, Ireland, Luxembourg and Malta, Eurostat in its second estimates for the fourth quarter of 2011 said growth was down by 0.3% compared to the previous quarter in the euro area and the EU27.
Over the whole year, GDP increased by 1.4% in the euro area and by 1.5% in the EU27, down on the 1.9% and 2% in 2010. Growth was previously estimated at 1.5% in the euro area.
This compares to fourth quarter growth in the US of 1.6%, up from 1.5% in the previous quarter while in Japan it fell by 1% and a -0.6% drop in the last three months of last year.
The lack of confidence in the euro area was reflected in household consumption spending dropping by 0.4% compared to 0.2% in the EU 27.
Investment in both areas fell by 0.7% following on from -0.3% in the previous quarter.
Exports dropped by 0.4% in the euro area and 0.1% in the EU27. Imports decreased by 1.2% in the euro area and by 0.8% in the EU27.
This followed growth of 0.7% in both in the previous quarter.
Greece (-7%) and Portugal (-2.7%) showed the sharpest decline for the year while growth was strongest in Lithuania (5.4%); Latvia (5.3%); Poland and Estonia (4%); and Germany (2%).
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