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Eurozone economy: Bloc's GDP shrinks 0.2% in Q2


08-15-2012 10:35 BJT

The eurozone’s two largest economies avoided contraction in the second quarter, but the resilience of Germany and France still wasn’t enough to prevent the currency bloc from contracting again.

It may have looked like ‘business as usual’ on the streets of European capitals on Tuesday, but the economy in the euro zone officially shifted from stagnation to decline—shrinking 0.2 percent from April to June. The zone as a whole isn’t in recession, yet. That requires two back-to-back quarters of decline.

The region’s two largest economies, Germany and France, avoided shrinking, but as a sign of how bad things have become – economists took comfort in a paltry three-tenths of a percent growth for Germany, and no growth at all for France.

Norbert Raeth, Germany’s Federal Statistical Office: “Due to the critical situation in Europe as a whole, this is an extremely good result. It means the German economy presents itself very, very robust, in particular, compared to the European neighbors.”

Although it’s the third straight quarter of economic stagnation in France, Finance Minister, Pierre Moscovici, says the French economy is still on track to post a marginal increase for the year.

Pierre Moscovici, French Finance Minister said,“Growth is very weak, but it’s on the level of 0.2 percent, which means that the prediction I gave of 0.3 percent was a prudent and reasonable forecast I think.” Overall, analysts say the outlook for the 17-nation euro zone remains bleak.

Business confidence in Germany has fallen to its lowest level of the year. In France, unemployment has risen for the 14th consecutive month. The zone’s second and third largest economies – Italy and Spain – are in recession, along with seven other nations in the currency bloc.

Germany will feel the pressure, because around 40 percent of German exports are shipped to euro zone countries. Gareth Isaac, Schroders Senior Portfolio Manager said,“Germany is a massively export driven market. I think it’s in Germany’s interests to solve the European issue, and bring back some confidence to the market to generate those export markets.”

As many European finance ministers remain committed to austerity measures to downsize their massive public debts, analysts say the threat of a eurozone-wide recession remains.

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