Troubled eurozone threatened by another recession

The eurozone is teetering on the edge of recession even as the dominant German economy continues to expand, official figures showed yesterday.

Output across the 17-member currency bloc fell by 0.2 per cent in the second quarter of 2012, having registered zero growth in the first quarter. Another quarter of negative growth will put the eurozone back into a technical recession and mean that the single currency area has registered no growth for a full year.

The latest flash GDP estimate from the Eurostat agency shows that output continued to sink in Italy, falling by 0.8 per cent in the second quarter. The Spanish economy contracted by 0.4 per cent. The worst performer was the Portuguese economy, where output plunged by 1.2 per cent over three months. Separately, Greece reported on Monday that its GDP was a full 6.2 per cent smaller than the second quarter of 2011.

City analysts expect another fall in eurozone GDP in the third quarter, despite a new commitment this month from the European Central Bank (ECB) to buy up bonds of struggling member states. "It is clear that eurozone GDP will register a larger contraction in Q3," Janet Henry of HSBC said. "This will raise even more questions about whether eurozone member states can realistically expect to meet their fiscal targets."

However, the overall picture was boosted by a slightly stronger than expected performance from the eurozone's largest economy, Germany, which grew by 0.3 per cent in the second quarter, on the back of strong consumption and decent exports.

But other northern eurozone nations fared less well. The French economy was flat over the quarter, the third in which it has had no growth. And the Finnish economy went into a sharp reverse, falling 1 per cent.

The president of the ECB, Mario Draghi, announced earlier this month that the central bank is working on a plan to purchase the debt in the secondary markets, in an attempt to bring down the unsustainable borrowing costs of Spain and Italy.