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Eurozone back in recession as southern Europe suffers

The eurozone has double-dipped back into its second recession in three years, official figures confirmed yesterday – and analysts warned economic pain across the single currency will continue well into 2013.

Output across the 17-member bloc fell by 0.1 per cent over the third quarter of 2012, following a 0.2 per cent decline in the second quarter, according to Eurostat.

The picture across the continent was uneven, with France and Germany both eking out 0.2 per cent growth between July and September, while the Netherlands and Austria showed declines.

Meanwhile, the crisis-hit states of Spain, Italy and Portugal, which have been in recession all year, shrank again. Protesters in all three countries took part in anti-austerity demonstrations on Wednesday.

Economists predict weakness among the currency bloc's southern states will drag Germany and France into recession, too, in the coming months, with most expecting Europe's dominant economy to register negative growth in the fourth quarter of the year. The European Commission has forecast that the bloc will shrink by 0.4 per cent over the course of 2012 and expand only 0.1 per cent in 2013. The slowdown is making it more difficult for eurozone member states to hit their targets under the Fiscal Compact, which compels them to bring deficits down to 3 per cent of GDP.

The European Commission, which policies the compact, showed some signs of flexibility on deficit reduction this week when the EU economic commissioner, Olli Rehn, said that Spain would not be required to make more cuts this year to compensate for being thrown off course by recession. But he added that Brussels would "look at every country case by case". The latest downturn has been partly precipitated by southern Europe.

The Greek economy shrank at an annual rate of 7.2 per cent in the third quarter, even faster than the 6.3 per cent in the previous three months.