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Euro zone fourth quarter contraction larger than estimated

Wednesday, April 8th 2009 - 01:54 UTC
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The Euro zone economy shrank more than previously estimated in the last three months of 2008, official figures say. GDP in the 15-nation area fell 1.6%, not 1.5% as previously thought, said the EU Eurostat office. Compared to the final quarter of 2007, GDP fell 1.5%, wider than an earlier estimate of a 1.3% decline.

The Euro zone tipped from economic growth into recession during the third quarter of 2008, when data showed that GDP declined by 0.3% for a second consecutive quarter. Two consecutive quarters of lower GDP is an informal but widely used definition of a recession.

Eurostat revised up households' final consumption to show a 0.3%, quarterly drop, a reversal after a 0.1% rise the previous quarter. Investments plunged 4% in the final three months of the year, steeper after a 0.7% decline in the third quarter.

Meanwhile, exports plunged 6.1%, also far worse than a 0.2% decline in the previous quarter, Eurostat said. Imports dropped 4.7%, turning lower following a 1.3% increase in the third quarter.

Economists have anticipated a first-quarter decline similar to the fourth-quarter plunge. Stabilization in some leading indicators, such as purchasing managers indexes for manufacturing and services, point to a bottoming out of output, however, toward mid-year, said Joerg Radeke, an economist at the Centre for Economic and Business Research. Still, the Euro-zone is in for a rough year amid a sharp, synchronized global downturn, he said.

“There is no illusion that 2009 will be the worst year in terms of economic performance for the Euro member states since the Second World War,” he said.

Consumer and business confidence stood at a record 24-year low in March, undermining prospects for investment, employment, and consumer spending, said Howard Archer, chief European economist at IHS Global Insight.

Retail sales remain soft, manufacturing is struggling, and survey evidence suggests that service-sector activity still contracted in March at the second-deepest rate, after February, in at least 10 years, Archer said, in a research note. Meanwhile, exports continue to plunge.

As a result of those factors and other evidence, IHS Global Insight is likely to cut its 2009 euro-zone GDP forecast from a 3% decline to a 4% contraction.

Categories: Economy, International.

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