MercoPress. South Atlantic News Agency

Euro zone economies contract in second quarter by 0.2%

The 15 economies of the Euro zone contracted by 0.2% between April and June heightening fears the Euro area is sliding towards recession. The first decline since the Euro zone was created in 1999 was driven by a slowdown in exports and consumer spending.

The German economy, Europe's largest, shrank by 0.5% in the second quarter compared with the previous quarter. And in both France and Italy GDP shrank by 0.3% in the second quarter. The slowdown was less pronounced in the wider European community of 27 nations including the UK, which contracted by 0.1%. However Estonia, where the economy contracted for the second consecutive quarter, is now considered to be in recession. Ireland, whose economy contracted in the first quarter of the year, has not yet released its second quarter growth figures. Compared to the second quarter of 2007, the Euro zone economies grew by 1.5% and the 27 European Union countries grew by 1.7%. The news weakened the Euro, which was already well down from its recent highs against the dollar. But high Euro zone inflation, which was unchanged on the month, made it unlikely that the European Central Bank, which raised interest rates last month, will reverse its stance. The figures reflect the way in which exporters have been affected by the strength of the Euro, which makes their products more expensive overseas, and a more general slowdown in global demand. French Finance minister Christine Lagarde, said the decline in the French economy in the second quarter "mostly reflects the deterioration of our international context, which particularly weighed on our exports and which is common to all European countries". "The fundamentals of the French economy are healthy," she added. Meanwhile a German Finance minister said its economy could contract again in the next quarter which would mean Germany was officially in recession. "At the moment that cannot be ruled out," said deputy economy minister Walther Otremba. Germany was once seen as the main driver of growth in the Euro zone. However exporting companies, such as Berlin-based manufacturer Witels Albert, are cutting back after seeing orders decline in the last few months, especially from the US. Despite the sharp slowdown in the second quarter in Germany, the government said it still expected GDP growth of 1.7% this year. Spain was the only one of the major Euro zone economies to see its economy expand between April and June. It grew by 0.1% compared with the previous quarter. Precisely on Thursday the Spanish government approved a 20 billion Euro stimulus plan to tackle the cooling economy. President Jose Luis Rodriguez Zapatero interrupted his holidays for a meeting with economy minister Pedro Solbes and other cabinet members. The government admitted that 2008 and 2009 will be tough, with Span's GDP growth rate slowing sharply, but anticipated GDP growth of about 3% starting in 2010. Figures also released on Thursday showed that prices across the Euro area rose by 4% in July compared to a year earlier. The European Central Bank increased interest rates in July by 025% to 4.25% in a bid to combat rising prices. The July figure is the same as June's inflation rate, but although the rate of increase is not quickening, economists said rising prices were still a concern.