It’s official, recession settles into the Eurozone too

The 15-member Eurozone officially slumped into recession after figures on November 14 showed its economy contracting by 0.2 percent for a second quarter in a row. The Eurozone’s latest GDP estimates were published just one day before heads of state and government from the world’s 20 leading economies were to meet in Washington to discuss the global financial crisis, which experts say is partly to blame for Europe’s economic slowdown.

According to flash estimates from the European statistical office, Eurostat, gross domestic product in two of the Euro area’s biggest economies, Germany and Italy, fell by 0.5 percent in the third quarter of 2008, after falling by 0.4 percent in the second. Another Eurozone heavyweight, France, saw its GDP grow by just 0.1 percent in the third quarter, after contracting 0.3 percent in the previous three months. The Eurostat figures confirmed that Europe’s economic locomotive, Germany, had entered into recession for the first time in five years on the back of falling exports.

The German parliament has just approved a 12 billion Euro economic-stimulus package put together by Chancellor Angela Merkel amid concerns that the slump will continue in 2009. In Italy, business confidence dropped to its lowest level in almost 15 years in October, with officials expecting the economy to stagnate in 2009. GDP in the Eurozone’s fourth-largest economy, Spain, contracted for the first time in 15 years in the third quarter, by 0.2 percent, with analysts attributing the slowdown mainly to the collapse of the country’s key construction sector. While European Union GDP also fell by 0.2 percent in the third quarter, economic growth in the 27-member bloc was stuck at zero percent in the second quarter.

Economists’ technical definition of a recession is two consecutive quarters of negative economic growth. However, there were more signs that the EU was also suffering, with sales of new passenger cars plunging by 14.5 percent in October, compared to the same month last year, according to the European car manufacturers’ association, ACEA. The sharpest drops in demand were found in Latvia (-37.7 percent), Spain (-23.8 percent) and Ireland (-18.2 percent.) European carmakers have long been lobbying governments to introduce financial incentives to boost sales as they try to fulfill the EU’s request for less-polluting vehicles.

The only good economic news of the day came from inflation figures, with Eurostat confirming that consumer prices in the Eurozone had slowed to 3.2 percent in October, compared to 3.6 percent in September. Inflation in the EU was also down, from 4.2 percent in September to 3.7 per cent in October, thanks mainly to a drop in oil prices. Meanwhile, the European Central Bank (ECB) pushed for tougher regulation of financial markets and closer links among central banks as remedies for the global financial crisis.

Lucas Papademos, the ECB deputy president, told a conference, “The worst financial crisis in decades has made clear that coordination between central banks and regulators is necessary.” He was speaking at a meeting in Frankfurt of European central bankers on the lessons and challenges posed by the Euro. The conference marked the 10th anniversary of the launch of the currency in 1998. The Eurozone nations and their constituent states continue to