Eurozone contracts 0.2 per cent, and could drag Germany down

THE EUROZONE economy contracted by 0.2 per cent between April and June, according to official figures from the European Commission. Meanwhile, a breakdown of different countries reveals that large declines in GDP posted by the single currency's weakest members were offset by growth in the northern European core.

German GDP increased by 0.3 per cent, fuelled by exports and domestic consumption, reports the BBC. Austria and the Netherlands each saw growth of 0.2 per cent.

Finland was the only eurozone country with a AAA credit rating to experience a contraction (0.3 per cent). France, meanwhile saw zero growth.

Among the eurozone's strugglers, Portugal contracted by 1.2 per cent while GDP in Cyprus fell 0.8 per cent and Italy was down 0.7 per cent.

With first quarter growth of zero per cent, the eurozone is not yet technically in recession (that requires two consecutive quarters of contraction) but analysts fear the single currency bloc is headed in that direction. Howard Archer of IHS Global Insight believes that the eurozone is likely to see a contraction of 0.5 per cent for the whole of 2012.

Aline Schuiling of ABN Amro said: "What we see is a vicious circle of budget cuts, high interest rates in the periphery and sovereign debt rising. Policymakers are moving very slowly. We expect another contraction in [the next quarter]."

Joerg Kraemer of Commerzbank told Reuters that Germany's GDP performance could be the last positive piece of news to come from the eurozone powerhouse for a while.

"The German economy could contract in the summer," he said. "It is fundamentally in good structural shape, but can't decouple from the recession in the eurozone, plus the global economy has also shifted down a gear." · 

More on Eurozone contracts 0.2 per cent, and could drag Germany down