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Eurozone Q4 Economic Contraction Confirmed At 0.3%

Eurozone Q4 Economic Contraction Confirmed At 0.3%
3/6/2012 6:58 AM ET

The Eurozone economy contracted as initially estimated in the fourth quarter, with the economic setback reflecting widespread weakness in spending, investment and foreign demand amid fiscal squeeze and debt woes.

Gross domestic product suffered a 0.3 percent reduction in the fourth quarter from a quarter ago, second estimates from Eurostat confirmed Tuesday. The first contraction since the second quarter of 2009, limited the annual growth to 0.7 percent.

In the third quarter, GDP grew 0.1 percent sequentially and advanced 1.3 percent from a year ago.

That said, European Economic Affairs Commissioner Olli Rehn said he sees signs of stabilization in the region.

On a quarter-on-quarter basis, household consumption fell 0.4 percent, offsetting the 0.3 percent growth in the preceding period. Economists had forecast a more modest 0.2 percent drop.

Government spending fell 0.2 percent for the second straight quarter, compared with expectations for no change. Investment contracted for a third consecutive quarter. In the fourth quarter, investment declined by 0.7 percent, steeper than the 0.4 percent decline expected by economists.

Exports fell 0.4 percent quarter-on-quarter and imports were down 1.2 percent.

Despite the overall improvement suggested by some Eurozone surveys and evidence that Germany is returning to growth, IHS Global Insight's chief European economist Howard Archer expressed doubt that the Eurozone will be able to avoid further contraction in the first quarter of 2012 and very possibly the second.

Germany, the largest member state, shrank 0.2 percent, while France grew 0.2 percent in the fourth quarter. Italy entered into a recession, down 0.7 percent in last quarter of 2011. Spain contracted 0.3 percent.

The European Commission expects the region to experience a mild recession, with the economy expected to contract 0.3 percent this year.

Supporting the assessment, the latest Purchasing Managers' survey revealed a below 50 reading for the composite output index in February. The private sector slid back into contraction, as drop in services activity offset a marginal rise in manufacturing output.

by RTT Staff Writer

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