MercoPress. South Atlantic News Agency

Euro zone contracts 0.2% in Q2; Germany remains strong but exposed to contagion

“France not in recession” while the majority of European partners are said Finance Minister Moscovici

The Euro zone debt-ravaged economy shrank in the second quarter (after a dismal first) and despite continued German growth which economists said could soon be snuffed out.

The 17-nation currency bloc contracted by 0.2% on the quarter, data showed on Tuesday. Germany eked out growth of 0.3%, marginally beating forecasts, but its forward-looking ZEW sentiment index slid for a fourth month running, undercutting even the lowest estimate in a poll.

Economists said that worse is likely to come and even Europe's largest economy is unlikely to defy gravity for long unless decisive action is taken to tackle the bloc's debt crisis.

Aside from a downward blip in the last three months of 2011, the Euro zone has posted pretty consistent, albeit anaemic, growth over the past three years although some of its debt-laden members have been in recession for some time.

For France, it was the third consecutive quarter of zero growth. The central bank has already said it expects a mild contraction in the third quarter.

“These figures are not excellent, but at the same time France is not in recession while the majority of its European partners are,” Finance Minister Pierre Moscovici told Europe 1 radio.

Safe-haven German Bund futures fell and European stocks rose after the slightly stronger than expected German and French GDP reports but the Euro dipped against the dollar after the ZEW survey came in worse than expected.

The think tank's monthly poll of economic sentiment slid to -25.5 from -19.6 in July. ZEW economist Christian Dick said the German economy would slow due to weak growth in its main export markets, but would not deteriorate sharply.

Austria and the Netherlands almost matched Germany's performance, each posting growth of 0.2%. Finland, one of Germany's northern European allies in pushing for austerity, suffered a 0.7% year-on-year fall in GDP.