Official figures released on Friday reveal that the 15-nation Eurozone has slipped into recession, with GDP declining by 0.2% for the second straight quarter.
Meanwhile, the wider European Union, made up of 27 countries, is also vulnerable, with the area’s output shrinking by 0.2% in the third quarter, after flat growth in the previous three months.
This follows the confirmation by Eurostat that Germany and Italy, two of Eurozone’s largest economies, are already in recession, joining Ireland.
‘The Germans had their gloomy economic news on Thursday and as Germany is the dynamo of the European economy, when there are problems there, it drags the rest of the region down with it,’ said BBC Berlin correspondent Steve Rosenberg.
While France narrowly escaped, growing just 0.1% in the third quarter after sinking in the second, Spain’s economy is expected to join Germany, Italy and Ireland in recession after it shrank in the third quarter.
The spending slowdown and tight credit conditions are hitting major purchases hard with car sales across Europe slumping by 14.5% in October for the sixth month in a row, according to the European Carmakers’ Association (ECEA)
‘It will be the biggest recession
since the ‘80s and will last through to the first half of next year’, said Christoph Weil, an economist with Commerzbank AG in Frankfurt.
This is the first recession since the euro currency was launched in 1999, when the European Central Bank took control of interest rates. Prior to that, the last major recession to hit European economies was in 1993 when each country controlled its own monetary policy and could react individually to such problems.
Analysts forecast worse to come.
‘Looking ahead, we can expect further quarters of negative GDP growth, until the third quarter of 2009, simply because so far we have not had in the GDP figures the full impact of the credit market crisis,’ said Gilles Moec, Senior Economist at the Bank of America.
Monday brought more bleak news as it was announced that Japan’s economy – the world’s second largest – has entered recession for the first time since 2001, shrinking 0.1% in the third quarter.
Statistics confirmed what most Japanese investors already new: that Americans and Europeans have stopped buying cars and electronics, and that Chinese factories have stopped buying industrial machinery.
Immediately following the release of growth rate data, the benchmark Nikkei index fell and has so far lost a quarter of its value since the beginning of October.
Japanese Economy Minister Kaoru Yosano said:
“The downtrend in the economy
will continue for the time being as
global growth slows.”
“We need to bear in mind that economic conditions could worsen
further as the US and European financial crisis deepens, worries of economic downturn heighten anD stock and foreign exchange markets make big swings.”