Horror news on Europe s economy

February 13, 2009
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, FRANKFURT, February 13 – A flurry of data revealed the dismal contours of Europe\’s new economic landscape on Friday, with key economies in deep recession, weak growth in previously dynamic eastern states and a disaster zone in the Baltics.

The trend was set by Germany which posted a 2008 fourth-quarter plunge of 2.1 percent in gross domestic product (GDP), its worst quarterly result in two decades, as exports and business investment buckled under the global crisis.

"The disaster is now official," commented Deka Bank analyst Andreas Scheuerle.

In Brussels, official data showed the 16-nation eurozone as a whole had shrunk by a record 1.5 percent in the same period compared to the third quarter, with the 27-nation European Union also in recession for the first time.

Italy revealed its recession had deepened with a new contraction of 1.8 percent in the final quarter of 2008, while French data confirmed a 1.2 percent decline in GDP in the same period.

France is the last major European economy not formally in recession, defined as two consecutive quarters of contraction. The economies of Britain and Spain began shrinking in mid-2008.

"Today\’s data wipes out any illusion that the eurozone is getting off lightly in this global downturn," commented Jorg Radeke, an economist at the Centre for Economics and Business Research.

In the Netherlands, data showed the Dutch economy in recession after its biggest decline since the beginning of the 1980s in the fourth quarter, while Austria reported a quarterly contraction for the first time in seven years.

In eastern Europe, solid growth rates have withered as western investors pull back and export markets, particularly for cars, have stalled. The Czech Republic and Slovakia still managed to post positive, if paltry, growth figures on Friday.

"The reason (behind the slowdown) is obvious: a slump in exports in reaction to the recession in the eurozone and tighter lending conditions," David Marek, an analyst with Patria Finance in Prague, told AFP.

The weakest performer in the region was Hungary, which entered recession in the fourth quarter after its economy shrank 1.0 percent, preliminary data showed.

For Baltic countries, strong growth has flipped into equally rapid contraction, with the economies of Estonia, Latvia and Lithuania in dire straits.

On a 12-month basis, Estonia\’s economy shrank 9.4 percent in the last quarter of 2008 on a 12-month comparison, data showed Friday, mirroring a slightly larger decline in neighbour Latvia announced earlier this week.

"There\’s no doubt the situation is very grim," Danske Bank chief economist Lars Christensen told AFP. "Latvia, Iceland and Ukraine are the hardest hit economies in Europe."

For the 16-nation eurozone, forecasters surveyed by the European Central Bank expect GDP to decline by 1.7 percent this year.

"One remarkable feature of the fourth quarter data is that those economies considered to be in better financial shape going into this crisis, Germany and Japan, have performed much worse than those economies that appeared more financially vulnerable, the UK and US most notably," Credit Suisse analyst Christel Aranda-Hassel said.

"One explanation may be that economies with trade surpluses were more vulnerable to a sharp contraction in global demand than those economies with trade deficits," she added.

UBS analyst Sunil Kapadia commented: "We have known fourth quarter (data) would be appalling for some time … The outlook for 2009 remains bleak.

"The leading indicators and industrial new orders remain in horribly weak territory."
Other industrialised countries or states already in recession include Canada, Croatia, Hong Kong, New Zealand and Singapore.

Elsewhere in the world, the United States has been in recession since December 2007, and Japan joined it in the third quarter of last year.

Russia and Ukraine are widely expected to be in recession soon.

In Asia meanwhile, China\’s economy grew at a relatively modest 9.0 percent in 2008, with India posting a comparable rate.

The Indian economy is forecast to expand by less than 7.0 percent this year, while Brazil, another major emerging economy, could see growth of just 1.8 percent according to the last weekly central bank survey of economists.

Most leading economies have drawn up economic support plans that are worth up to nearly 800 billion dollars in the case of the United States, once the plan is approved by lawmakers.

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