European Economy Shrinks For First Time Since Introduction Of The Euro

BRUSSELS, Belgium — The euro-zone economy shrank 0.2 percent in the second quarter, EU statistics showed Thursday, raising recession fears as Germany, France and Italy braked sharply with high fuel and food prices holding back consumer spending.

Worse seems yet to come, with European business and consumer confidence at the lowest level in more than five years in July, inflation hovering at the highest point since 1996 and the jobless rate climbing from an all-time low.

Still, the European Commission sought to downplay concerns Europe is verging on a recession, with spokeswoman Amelia Torres saying it would be "exaggerated to use that word."

No euro country is yet officially in recession by showing two consecutive quarters of negative growth _ although Ireland may be once it publishes a second-quarter figure. The once-booming Celtic tiger economy contracted in the first three months of the year.

Output in the 15 economies that share the euro currency contracted by 0.2 percent in the April to June period from the first quarter, expanding just 1.5 percent from the same period a year ago, the EU statistical agency Eurostat said in a first estimate that it may change on Sept. 3.

Torres said the figure was "not really a surprise" given record-breaking oil prices during the second quarter and a mild winter that boosted construction _ and economic growth _ from January to March, making it harder for the second quarter to show an improvement.

But she said the figure "confirmed that the risks are on the downside for growth."

Germany, the region's largest economy, shrank 0.5 percent in April-June from the previous quarter with France and Italy both down 0.3 percent. German growth dropped for the first time in nearly four years.

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The world's biggest exporter had so far weathered the economic storm brewing in Europe even as high inflation hit spending at home and foreign sales were hurt by a slowing world economy and the strong euro.

France's sluggish economy failed to lift with the rest of Europe in the last two years. President Nicolas Sarkozy was elected in May 2007 on a promise to turn the country around and help create new businesses.

Any efforts may be coming too late. Marc Touati, an economist at Paris-based brokerage Global Equities, said "the French economy is not just going through some simple turbulence, but is really heading toward a recession at least as bad as in 1993."

Analysts blamed low investment and sliding exports. France depends more on luxury exports such as champagne that have been worse hit by the strong euro and the U.S. slowdown. Germany is more reliant on exporting to emerging economies Brazil and China.

Separately, Eurostat said that July inflation was still high but better than anticipated, posting a figure of 4 percent _ the same as June _ that it revised downward from a record high of 4.1 percent.

The bank in June hiked interest rates from 4 percent to 4.25 percent to try to cool inflation _ even though this risks slowing growth by increasing the cost of borrowing money in a tight credit market still suffering from the subprime banking crisis. Bank President Jean-Claude Trichet pointed to weak growth after the bank's August meeting, suggesting further increases were less likely.

The broader 27-nation European Union also saw growth fall by 0.1 percent from the previous quarter, up just 1.7 percent from a year ago.

Only one EU country is now officially in recession: the formerly fast-growing Baltic economy of Estonia. The economy shrank 0.9 percent in the second quarter and 0.5 percent in the first.

Denmark also risks recession. Eurostat had no second-quarter figure Thursday but the country posted growth of minus 0.6 percent in the first quarter.

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Associated Press writers Greg Keller in Paris and Matt Moore in Berlin contributed to this story.

Comments

[ceasenake]

THe pedulum swings back.

[andyg]

Recession in Europe.

[bigdoug1053]

Anybody selling the popular idea of energy independence is either lying or grossly misinformed. We are simply using too damn much energy. Americans burn through 21 million bbl/d of oil, and our total energy use (oil+coal+­nuclear+na­tural gas+renewables) amounts to burning the equivalent of an Olympic-sized swimming pool (>600,000) gal of sweet crude every 30 seconds, 24/7. Oil production, including natural gas liquids and tar sands, has not exceeded 85 million bbl/d since 2005, despite a quadrupling in price and increasing demand. We are on the rocky demand destruction plateau of Peak Oil, and within 5 years - maybe sooner - we will face permanent declines in oil production and exports.

Dry natural gas peaked in 1973 and we also face North American supply declines that will reduce the gas we need for electricity, home heating and cooking, and ammonia fertilizer production. So Picken's plan for natural gas automobiles is problematic.

I am all for a rapid and huge shift to renewables - no matter who is making money with it - but we do not have 20 years. All materials production and energy generation depends heavily on petroleum, and once we pass Peak Oil, all energy production will also suffer and decline, and it may well be too late to beat the depletion clock. Wake up people. We are in unprecedented and historic trouble.

[darthdarcy]

It's the inflated and manipulated cost of Oil and Gas destroying the western economies.­..!

We must get the Futures and Commodities Market back under strict regulation­s..!

[StephenJK]

100% agreed! Make it VERY strict.

[Nofuzzydreams]

Yes, blame the Chinese. Chinese imports raises the standard of living for the vast majority compared to the minority that loses jobs. An young couple can furnish their apartment with nice furniture, for example, instead of that being the privilege of a select few in the past.

What we need to do is to export more which will create jobs here. It is happening slowly as US exports (US is the world's largest exporter) reached a record in the last quarter. And we need to get tough on intellectual property rights. 99% of world's computers use American hardware and software technology (I am not talking about low-margin assembly business or even chip manufacturing businesses which are ultimately low-margin - the money is in the design and software). And there is no end in the near future (10 years) on American intellectual property dominace. As China's billion gets to use more and more computers we need to extract the value of IP from them.

[PublicAdvocate]

It is terribly naive to think that intellectual property rights will be enforced in China. China does not have the same ethic about just compensation and fair payback for innovation as we do in the USA. The way they view technology, is if it can be duplicated, then its theirs for the taking and there is no need to compensate the creators/producers.
If you go to China, you can see countless examples of stolen American products/software from CD's to DVD's to computor software as well as lots of fake designer products from the USA and Europe. I wonder how much stolen technology is NOT seen?
If anyone could add it up it would probably be close to a trillion dollars in lost revenue owed to our nation. Unfortunately, the Chinese government looks the other way on this issue and views theft as giving them an unpaid advantage.­.. and they're right.
Other than halting trade, I'm not confident that American products/i­nnovations­/technolog­y can ever be protected overseas which means we are subsidizing their success over us.
Ralph Nader said he would cancel the WTO and NAFTA as his first act in office. I'd like to see Obama say he would do the same to stop the bleeding.

[marko77]

Of course the Euro has shrunk and will continue to slide. Why? Because the Europeans import massive amounts of "cheap" imports from China just like everyone in the US. As a result, America and Europe have become Second Tier countries and are headed for Third World status.

How do you say "Banana Republic" in French and every other language spoken in Europe other than English? Well, no matter how you say it, we will all experience it soon......­.except for the very few in each country who have become filthy rich by allowing China and other former and current poor countries to employ children and adults for slave wages to produce the World's goods.

Note: China pays fairly well, compared to many countries: 75 cents per hour for adult labor and 25 cents per hour for children. Pretty slick.

[Erdgeist]

The U.S. and Europe have embraced the beast of free-trade permitting corporations to labor arbitrage (i.e., outsource) essentially trading away 'comparative advantage' to China. For the U.S., labor arbitraging began in 1973 with Nixon, who was instrumental in putting the U.S. on the course of free-trade thus moving the U.S. towards Third World status. Fundamentally, there is no reason to have free-trade if a country like the U.S. can obtain its own goods and services (which it did prior to 1973). Dr. Stiglitz has shown that free-trade makes nations, writ large, worse off--not better off. Paul Bairoch, an economic historian, said that free-trade inevitably leads to depressions.

[PublicAdvocate]

Americans will never and should never compete with slave wage jobs and businesses that have no worker protection or safety regulations. We will never be competitive with jobs that have no benefits or companies that freely pollute the world.
We should become more independent and not join the WTO's "Race to the bottom" contest. Instead, we should bar trade with nations that do not meet our higher standards or put corrective tarrifs on imported goods to insure first and foremost that our people and our families and our nation always come first. Ralph Nader would do that.

[DuganS1]

Nixon enacted tariffs in 1971 and was not instrumental in putting US onto the course of free-trade. Nixon also put forth price and wage ceilings. The US increased foreign trade significantly in the 1950s and 1960s, long before Nixon was President. Nixon actually wanted to restrict imports and devalue the dollar to increase competitiveness vs imports. President Carter was - like Eisenhower, Kennedy, and Johnson- also a major supporter of free trade.

[mexicanamerican1948]

A weak dollar an a weaker dollar better, maybe someday we will stop buying China toys, Italian shoes,etc as they will too expensive. New opportunities for entrepreneurs to start factories in the USA and make tons of money and have American jobs instead of Chinese jobs. USA jobs are good, imported products are middle class killers.

[Clarabell]

Seems to me that tourism, or a lack thereof from American dollars, will eventually take it's toll in Europe.

[sparkandy]

Yeah! Now pretty soon I can afford to go back to Europe. Now if the pound would just take a nose dive.....

[talkingclock]

I am in the same boat, pretty soon I can afford to go back to Europe as well:-).

[RJII]

hey, george bush can come over in January and help ya with the euro.

[the964kid]

Gimme some euros any day over these weak-a** US dollars!

[LiberalIncarnate]

Economics is not a "hard" science. It is a "soft" science. Sorry to break to all of the economists out there.

[chinationreport]

What could we have expected differently? It is a matter of time with all the rising cost of Euro, regulations, labor costs... also rising trade protectionsim, that Europe's economy will decline further.
But I do see US and China economy can benefit from a really diversified cooperation at all levels. News just out that USA exports grow faster than China for the first time in years (23% vs. 17%). US is benefiting from the weaker dollar and the strong growth in China.

http://www.chinationreport.com for one stop news about China

[Unrepentant]

The US is benefiting from the week dollar? Is that some kind of cruel joke?

Are you even aware that a huge percentage of the increase in the price of oil is a result of the devaluation of the dollar? Quite literally, with the dollar so low with respect to other currencies, we are being outbid for the oil. Why is the dollar so devalued? That is all the fault of the Bush admin. They have intentionally destroyed the value of the dollar by borrowing 100s of billions of dollars to wage this war for Iraq's oil.

Because the Bush administration has borrowed so much money to pay for this insane war, investors will not buy our debt. We can't give away dollars because no investor wants to loose money by investing in our currency. Despite this, the FED can't raise interest rates or they will accelerate inflation! So we are in a situation where investors can buy US debt for a return of about 3% while inflation is about 5.6%. So, I am sure that you can see that by investing in US$ (i.e., loaning the US money) an investor will make a negative return of 1.6% a year. Just in case that's too complicated for you, THEY LOOSE MONEY.

The only reason that the dollar is rising against the Euro is that Europe has their own set of fiscal worries. It has nothing to do with the US actually strengthening its economy.

[Dewtrell]

AWESOME! I want to go back to Paris and it would be much better with a lower dollar. I went last November and it was painful at $1.49 to the Euro and $2.07 to the pound.