Poor growth numbers raise new euro fears

 

Official figures showing large parts of the eurozone to be in recession yesterday fuelled investors' fears about the viability of the single currency.

Spain contracted by 0.3 per cent in the first quarter, while the Italian economy shrank by 0.8 per cent and there was zero growth in France, according to the Eurostat agency in Brussels. Separately, Greece's national statistics office revealed an annual contraction rate of 6.2 per cent over the quarter.

Germany, however, said it had returned to growth in the first three months of 2012, with a stronger than expected 0.5 per cent expansion. The decent German performance means the economic output of the eurozone as a whole was flat for the quarter, after a 0.3 per cent contraction in the final three months of 2011, Eurostat reported. This means the eurozone narrowly avoided falling back into its second recession in three years.

Yet the clear divergence between Germany and the rest of the eurozone stoked investors' concerns about the continent's more vulnerable economies. Spanish and Italian borrowing costs jumped again yesterday as financial markets fretted that Madrid and Rome could be next to apply for a eurozone bailout. Italian 10-year bond yields rose above 6 per cent for the first time since January, while Spanish 10 year bond yields hit 6.34 per cent.

Far from welcoming yesterday's narrow avoidance of a recession, analysts warned that the situation in the eurozone was likely to deteriorate. "Looking ahead, the situation will only get worse as the periphery remains mired in recession and German exports falter," said Capital Economics.

Economists also pointed out that business survey indicators suggest the eurozone could contract in the second quarter. Paolo Pizzoli, of ING, said of the weakest economies: "Technical recession is here to stay for at least another couple of quarters."

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