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Double-dip threat to eurozone


The embattled eurozone was on the brink of a double-dip recession today as figures revealed that the 17-nation economy shrank by 0.2% between April and June.

The UK's biggest trading partner suffered the decline in output as the debt crisis sweeping the continent escalated, with borrowing costs in struggling countries such as Spain and Italy remaining high.

But the eurozone performance still puts the UK in the shade after figures last month revealed that Britain's economy shrank by 0.7% in the same period.

This compares poorly with the likes of Germany and France, which saw better-than-expected gross domestic product growth of 0.3% and zero respectively.

ING Bank analyst Martin van Vliet said: "Leading indicators suggest there is a fair chance that the eurozone economy might contract further in the third quarter and hence enter a technical recession."

A breakdown of the figures reveals severe declines in output, with Belgium suffering a 0.6% decline in GDP, Italy contracting by 0.7% and Portugal's economy shrinking by 1.2%.

The Netherlands and Austria both saw growth of 0.2%, while the whole of Europe, including non-euro countries, declined by 0.2%.

The figures compare with 0.4% growth in the US and 0.3% growth in Japan.

But the single currency strengthened against most major currencies on the back of the better-than-expected performance from Germany and France.

Mr van Vliet said: "The country breakdown tells a tale of two regions. Northern eurozone economies are still defying technical recession, while southern Europe remains mired in recession."

The UK found itself in the longest double-dip recession since the 1950s when official figures revealed that the economy had contracted for the third consecutive quarter between April and June.

The biggest quarterly decline in three years was driven by a dire construction and manufacturing performance, as well as one-off factors such as the additional bank holiday for the Queen's Diamond Jubilee.

Meanwhile, the UK's trade deficit widened to a record level in June as exports plunged to the eurozone and across the world.

The goods and services deficit - the gap between imports and exports - rose to £4.3 billion from £2.7 billion in May, the highest level since comparable records began in 1997, as exports of traded goods to EU countries fell by 7.2% month on month.