Eurozone Economy 'Not Likely To Recover Any Time Soon,' Economist Says

* Euro zone GDP stable at 0.0 pct change in Q1 from Q4 2011

* Germany surprises with 0.5 percent growth in Q1

* French growth evaporates after positive Q4

* Italy epitomises depressed south, contracting 0.8 pct in Q1

By Robin Emmott

BRUSSELS, May 15 (Reuters) - The euro zone just avoided recession in early 2012 but the region's debt crisis sapped the life out of the French and Italian economies and widened a split with paymaster Germany.

Euro zone gross domestic product stagnated in the first quarter, the EU's statistics office Eurostat said on Tuesday.

That was a touch better than forecast by economists, who had expected a 0.2 percent slump, and dodging a technical recession following a 0.3 percent contraction in the last three months of 2011.

A surprisingly strong 0.5 percent expansion by Germany, Europe's biggest economy, appeared to save the bloc from recession, even as the French economy stalled and Italy reported weaker-than-expected output that epitomised southern Europe's anaemic economies.

"Germany is leading the bloc, but this doesn't mean we will have a strong rebound, austerity is not going away and southern European economies are really struggling," said Mads Koefoed, a senior economist at Saxo Bank. "We are looking at stagnation to very mild growth in the year to come," he said.

Barely out of the 2009 financial crisis, businesses and households in much of Europe are hampered anew as governments cut back on spending to curtail budget deficits and companies freeze plans to invest.

Despite two summits this year and another planned for next week, EU leaders have been unable to find a way back to growth, while many southern Europeans are turning against austerity measures, holding huge street protests in Madrid and backing radical political parties in Greece's recent elections.

Optimism in January that the euro zone would recover quickly in 2012 has been crushed by unexpected contractions in manufacturing, consumer confidence and business morale, while one in 10 euro zone workers is out of a job.

"The euro zone economy... is not likely to recover any time soon," said Jurgen Michels, an economist at Citigroup in London.

Germany's economy, lifted by exports of precision machinery and luxury cars, bounced back from a 0.2 percent contraction in the last three months of 2011.

Austria, Slovakia and Finland also posted modest growth.





GERMANY VS THE SOUTH

But for the rest of the bloc, efforts to reduce deficits are costing growth and making it harder to reach EU-mandated targets, calling into question the wisdom of cutting so deeply.

"There's a growing divergence in the euro zone, with particularly sharp contractions in the peripheral countries that need to do the most structural reforms, while Germany is the outperformer," said Joost Beaumont at ABN Amro in Amsterdam.

Italy's economy, the third largest in the euro zone, contracted by more than expected in the first quarter, falling 0.8 percent and marking the third consecutive quarter contraction.

After a decade of falling productivity in Italy, the impact of the debt crisis has highlighted how barriers to competition, heavy regulation and bureaucracy are dragging on the economy, discouraging investments and prosperity.

"Technical recession is here to stay for at least another couple of quarters," said Paolo Pizzoli, an economist at ING.

Spain, which is struggling to reduce a huge deficit and rebuild its banking sector following a burst property bubble, is already in recession, after GDP shrank 0.3 percent in the first quarter.

Even in the wealthy Netherlands, economic output contracted for a third consecutive quarter, shrinking 0.2 percent in the first quarter of 2012 compared to the previous three months, underscoring just how damaging the crisis has become.

Comments

[glowdotor]

05:15 PM on 05/17/2012

Please don't end the recession too soon. Lack of money among poor, pretty girls has made seduction much easier for us rich guys.

[Terran]

07:21 PM on 05/15/2012

europeans need to overhaul entire system to move forward. over the years some countries like greece have been riding on a coat tail and now it came to an end. greece should exit the euro zone and to allow itself to re-stabilize. this will allow other eurozone countries to get their stuff together. greece is like an iron ball at the leg, it has no purpose besides slowing things down. to be in the elite club in the eurozone you better act like one - with all the fiscal responsibilities. the unfortunate part is that greeks are socialists and think that money comes for free. the bubble has burst.

[Erikhuffpost]

05:15 PM on 05/15/2012

How about kicking all those economists and Wall Street pinball wizards out of their jobs and telling them to actually produce something? And by that I mean not more reports, papers and everything, but simply something with their hands.

[babyspittle]

11:53 AM on 05/15/2012

but "yay for austerity" the dumb cons chant, mindlessly.

[gerald4]

10:53 AM on 05/15/2012

I do not know why economists or anyone else could refer to or compare any nation's sovereign debt and/or Federal Government annual deficit spending as a percentage of Gross National Domestic Product (GDP).

This GDP has nothing to do with the ability of a nation to repay their national debt, especially if the majority of the GDP activity was federal government borrowing money from wealth producing entities in the industrial nations and using this borrowed money to pay for bureaucrat payrolls, infrastructure, unemployment benefits, education, welfare, retirement pensions, high speed rail, free medical services, housing, wars, social services, pork barrel projects and other tax funded bureaucrat jobs that do not produce any national wealth that the nation could use to repay national (sovereign) debt, reduce the foreign trade deficit, or to re-industrialize their nations in order to create new national wealth?

[babyspittle]

11:54 AM on 05/15/2012

"This GDP has nothing to do with the ability of a nation to repay their national debt"

of course it does.
if the nation is producing a GDP of 14 trillion, a 10% tax gives revenue of 1.4 trillion.

[gerald4]

01:00 PM on 05/15/2012

What if the Greek GDP was mostly the Greek Government borrowing money and paying bureaurocrats that work for the government?

[JoeMomma]

10:49 AM on 05/15/2012

Take note inflationists and money printers. Germany, the only country not to have massive bubbles, is also the only country left with a decent economy. In other words, they were right and everyone else was wreckless - and wrong. So do everyone a favor and stop criticizing Germany, or acting like you have any idea what you are talking about. Because you don't.

[mfitz11]

10:30 AM on 05/15/2012

It's not all of Europe, it's a few countries that were a mess even before the financial crises and are now dragging down all of Europe.
Greece has always been a mess.
Italy and Spain have also always had financial issues - hence all of the crime and corruption.
Ireland was solely dependent on foreign investment to fuel the "Celtic Tiger". When the foreign companies began struggling and started closing up shop in Ireland, they collapsed. They also got even more out of control than America with the home prices and borrowing.
Germany, although their growth slowed last quarter, was not really hit by the financial crises.
The UK and France were hit about the same as America and Sweden, Netherlands, Switzerland, Belgium, Austria, Norway, Finland, etc. were not even grazed by the financial crises.
People look at Europe as a mess, when in fact most of Europe fared better than America with the financial crises.

[gerald4]

10:46 AM on 05/15/2012

Are you saying that the Europeans created their mess?

I hope that you are not saying thet the US taxpayer should borrow some money from China and then buy some of their various European Soverign Government Bonds!

[Norma Ward]

10:00 AM on 05/15/2012

Here is an article that shows how Europe's austerity attempts are creating even greater debt problems:

http://viableopposition.blogspot.ca/2012/05/austerity-in-europe-is-it-accomplishing.html

[Chase Chevalier]

09:51 AM on 05/15/2012

This is news?

[PROGRESSISGOOD]

09:44 AM on 05/15/2012

Austerity is working so well for the European elites, the Republicans can't wait to do the same thing to America.

[Chase Chevalier]

09:52 AM on 05/15/2012

Only liberals live in a world where they believe they deserve to be taken care of at no expense. Its called the liberal reality and it only exists in the minds of Liberal elites to control you.

[manna23]

10:03 AM on 05/15/2012

I love how Europe used liberal policies for many, many years and that's what got them in the mess. They tried for a short time austerity reform and the liberals are saying austerity is the problem? The left is like my 5 year old son. It's never his fault and he is very fast to place the blame on his sister.

[PROGRESSISGOOD]

10:41 AM on 05/15/2012

I believe you have mistaken the entitlement mentality of the financial aristocracy in America for the liberal belief in equal opportunity for all.

"Without economic justice their can be no freedom or individual liberty."
FDR

[exchef100]

09:40 AM on 05/15/2012

Austerity is working!!! Hooray!! (cough cough)

[becky bradshaw]

09:38 AM on 05/15/2012

"The share of global GDP accounted for by advanced industrial nations1 during the 20-year
period from 1980 to 2000 has either stayed almost the same or fallen (US: 24.5 percent à 26.4 percent, EU: 31.1 percent à 27.2 percent, Japan: 17.0 percent à 16.7 percent). In contrast, the share of the global GDP accounted for by East Asia has risen approximately 2.4 times (3.1 percent à 7.4 percent)." (1)

It is a mistake to make conclusions only looking at data from small section of the world economy, for example, Greece.

The U.S. has lost more than 50,000 manufacturing jobs per month since 2001, the year that China was granted full WTO status. (2) For each pure manufacturing job, 2-3 support jobs are lost. Similar loss of jobs in most of Europe (Germany being a notable exception), have been seen.

The economies in Europe and North America are in desperate condition. This being an election year in the U.S., it would be appropriate for at least one of the candidates would offer a proposal of correction. And saying something like "I know better" does not count.

References:
1. http://www.meti.go.jp/english/report/downloadfiles/gIT0311e.pdf
2. http://investmentwatchblog.com/the-united-states-has-lost-an-average-of-about-50000-manufacturing-jobs-per-month-since-china-joined-the-world-trade-organization-in-2001/

[gerald4]

11:04 AM on 05/15/2012

But Becky, the US GDP includes a large percentage of the economic activity of federal and local government activities that consume wealth in the USA instead of creating new wealth in the USA.

If any nation wants to rebuild their national economy to creqate new wealth, then they could re-industrialize to create new NATIONAL WEALTH (and jobs for their citizens) that will be available for a portion to be CONFISCATED in the form of TAXATION by various levels of government in order to create funds to pay contractors to perform INFRASTRUCTURE PROJECTS, education, healthcare, rather than going deeper in debt by borrowing more and more money from the wealth creating (BRIC) nations.

Each Nation’s Government should stop creating new legislation that ECONOMICALLY REQUIRES that their businesses relocate their manufacturing operations and those associated jobs to foreign countries.

Each Nation’s Government should repeal all of the laws that they previously created that caused and ECONOMICALLY REQUIRED that their businesses and their jobs to relocate to foreign nations.

[Tahut]

09:00 AM on 05/15/2012

The Euro unified sovereign treasuries into the European Central Bank (ECB). What's killing them now is they failed to move on to the next step ... unify national sovereignty - make independent countries into independent states and create a European Union Congress that makes decisions for the entire EU. The US would be a role-model to consider.

[gerald4]

11:06 AM on 05/15/2012

So that the industrialized European States could be taxed to support the de-industrialized European States?

[schatsie]

08:41 AM on 05/15/2012

Well it's been 8 years here with loosing jobs and replacing them with big box jobs and real estate bubble..... Not much here to look at....the only reason that the Bush recession in 2002 was not worse was the 4 trillion dollars taken out of home owner equity....