November 15, 2012 / 10:35 AM / 8 years ago

Instant View: Euro zone slips into recession in Q3

BRUSSELS (Reuters) - The euro zone fell into a recession in July-September, the second since 2009, as French resilience could not make up for a slump across Europe and the three-year debt crisis slowed Germany to a crawl.

Economic output in the 17-country euro zone fell 0.1 percent in the third quarter, the EU’s statistics office Eurostat said on Thursday, following a 0.2-percent drop in the second quarter.

Separate Eurostat figures showed the euro zone’s annual inflation fell to 2.5 percent in October from 2.6 percent in September, suggesting an end to a run of stubborn inflation that has contributed to the difficult environment.


“A preliminary estimate from Eurostat showed euro zone GDP edging down by 0.1 percent quarter-on-quarter in the third quarter of 2012. Given that this followed contraction of 0.2 percent quarter-on-quarter in the second quarter, this confirmed that the euro zone is now in modest recession in all senses of the word.

“In reality, the euro zone was already in recession in most senses of the word as a current record unemployment rate of 11.6 percent would testify.

“Indeed, the third quarter of 2012 marked the third euro zone quarter-on-quarter GDP drop in four quarters (broken only by flat GDP in the first quarter of 2012) and left GDP down by 0.6 percent year-on-year.”

“The euro zone contracted modestly in the third quarter as moderate growth in France and Germany failed to offset marked overall contraction in the southern periphery countries. Furthermore, GDP contraction in the third quarter was not limited to the southern countries, as Dutch GDP plunged 1.1 percent quarter-on-quarter and Austrian GDP edged down by 0.1 percent.”

“With the euro zone seemingly headed for further GDP contraction in the fourth quarter after moving officially into recession in the third quarter, and with the underlying inflation situation in the single currency area looking far from alarming, we believe that the ECB will take interest rates down from 0.75 percent to 0.50 percent sooner rather than later. Indeed, an interest rate cut in December is very possible.”


“This was totally expected because of austerity policies combined with world growth slowing down and a dramatic fall in activity in Germany and the Netherlands.

“Social tensions are rising, as we saw yesterday, because the first casualty is the real economy.

“The last couple of days have created a new momentum for a major change in policy input, because up until this week, social tension was not part of equation. It seems like the tone has shifted dramatically.

“Policymakers are disturbed by the social unrest and the calls for harsh austerity to stop.

“The balance now will have to be to continue to implement reforms and also reducing the burden of austerity through debt relief, which is a very difficult balance.”


“I think effectively it’s close to zero, and who knows where it will come out with the revisions that come through.

“No one’s been kidding themselves that the euro area economy isn’t very, very weak. The PMIs (Purchasing Managers’ Index) have been consistently poor for some time now, and there’s no real evidence there of any pickup in momentum for the quarters ahead.

“So, yes we’re in technical recession, but whichever way of that zero mark we would have ended up today, we remain concerned about the euro-area economy and what can be done to stimulate it, and get a firmer recovery for the quarters ahead.”


“The double-dip is a fact. The -0.1 was not a surprise after the German and French numbers, it could have been worse. What you notice is that the recession in southern Europe is slowly creeping to other countries.

“Look at the Netherlands, with a strong contraction, and Austria, also with a small contraction. There was no contraction in Belgium and Finland but the second quarter was very bad.”

“If you look at the indicators for the fourth quarter you see that even Germany may not grow again and that shows that the economy has an enormous need for a new impulse. My conclusion is that policymakers are not considering to take it easy with savings, so everybody is looking at what the ECB can do and what is happening to the euro. A weaker currency and monetary stimulus is needed to get the economy back on track.”

“If the global economy grows faster again, there are rays of light in China, if the U.S. sails past the fiscal cliff, Germany could pick up again but the question is whether that would be enough to counteract the contraction in other parts of the euro zone.”

“It’s nothing to be happy about, especially if you see that other economies are growing, the United States as well. It’s a wake-up call for policymakers to not lean back and think hard about where growth in Europe has to come from, if you’re making so many cutbacks.”


“We are now getting into a double dip recession which is entirely self-made.

“It is a result of excessive austerity in southern countries and unwillingness in the north to do anything else.

“Countries in the south have to reduce their deficits, but they cannot if those in the north with a surplus are not willing to help with stimulus.

“This divide, even hostility, between countries is stronger than I have seen in the last 20 years.

“The degree of austerity has now put so many people in terrible conditions that they reject all of this. That’s a very dangerous situation.”

Reporting by Ben Deighton, Robin Emmott and Robert-Jan Bartunek; compiled by Rex Merrifield

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