The Eurozone economy contracted for the second time in three quarters as expected, despite the two biggest economies of the region showing some resilience, lifting possibilities of a recession going forward, official data showed Tuesday.
According to the flash estimate of Eurostat, gross domestic product of the 17-nation economy fell 0.2 percent from the previous quarter. The flat reading in the first quarter helped the region to skirt a recession after a 0.3 percent decline in output at the end of 2011.
Nonetheless, the currency bloc is widely expected to see another contraction in the next quarter and step into a technical recession as most of the economies are undergoing fiscal consolidation.
Weakening sentiment, deterioration in the labor market and falling consumer spending amid unresolved debt crisis are other major factors behind the economic downturn. Industrial production slipped 0.6 percent month-on-month in June, the Eurostat said today, largely due to weak output of capital and non-durable consumer goods.
Even if lower inflation and some limited temporary easing of sovereign debt tensions allows Eurozone economic activity to stabilize in the fourth quarter, GDP is still likely to contract by 0.5 percent overall in 2012, IHS Global Insight economist Howard Archer said.
On a yearly basis, the euro area economy shrank 0.4 percent in the second quarter after stagnating in the previous quarter. The annual fall also matched economists' expectations.
The largest euro area economy expanded in the second quarter, while France managed to avoid a recession. German GDP rose 0.3 percent, which was slower than the 0.5 percent expansion in the previous quarter. On the other hand, the French economy stalled for a third successive quarter due to weak demand.
European Commission expects the Eurozone economy to shrink 0.3 percent this year, and expand 1 percent in 2013. The Organization for Economic Co-operation and Development sees 0.1 percent contraction in economic activity in 2012, before returning to growth in 2013.
Professional Forecasters surveyed by the European Central Bank expects the Eurozone economy to shrink 0.3 percent this year and to grow 0.6 percent in 2013.
Austria, Estonia and the Netherlands expanded in the second quarter. But together with struggling southern periphery nations, Belgium and Finland logged declines in the latest quarter.
According to preliminary official estimates released recently, the Spanish and Italian economies suffered deeper recessions in the second quarter with the poor economic performance aggravating their fiscal woes.
Spain's GDP sank 0.4 percent in the second quarter of 2012 after a 0.3 percent decline each in the previous three months and in the fourth quarter of 2011. Italy's GDP dropped 0.7 percent sequentially, following a 0.8 percent decline in the previous quarter.
Other Eurozone economies in recession are Greece, Portugal and Cyprus. Greece had a 6.2 percent contraction in the second quarter, slightly better than the 6.5 percent decline in the first quarter. The country is in its fifth year of recession.
Portugal's GDP was down 1.2 percent, sharper than the 0.1 percent drop in the first quarter. The decline in Cyprus GDP doubled to 0.8 percent from 0.4 percent.
The EU 27 GDP fell 0.2 percent on both sequential and annual basis in the second quarter.
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