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Brussels - The eurozone narrowly escaped technical recession
in the first quarter as exports offset a plunge in investment and inventories
to produce a flat reading, data showed on Wednesday, but it was unlikely to
escape contraction again in the second quarter.
The European Union’s Statistics Office confirmed its
previous estimate that the 17 countries that share the euro produced the same
gross domestic product in January-March as in the previous three months.
But it revised down its previous estimate of the
year-on-year GDP growth in the first quarter, to a contraction of 0.1% from a
flat reading.
“There can be little doubt that the eurozone will suffer
renewed, appreciable contraction in the second quarter and prospects for the
third quarter hardly look encouraging at the moment,” said Howard Archer,
economist at IHS Global Insight.
Archer noted that the overall eurozone economic sentiment
sank to a 31-month low in June and the purchasing managers’ surveys showed
combined manufacturing and services activity at a 35-month low in June.
“Furthermore, an overall unemployment rate of 11.0%, and
rising, highlights the eurozone’s woes,” he said.
The data comes as the European Central Bank meets to discuss
interest rates. Economists expect no policy moves on Wednesday, but possibly an
indication of a readiness to cut rates next month, given a weakening economy
and Spain’s banking troubles.
Eurozone output contracted 0.3% in the last quarter of 2011
against the previous three months and, if the economy had shrunk for a second
consecutive quarter, the eurozone would be in technical recession.
Exports help
Eurostat said exports contributed 0.5 percentage points to
the final quarterly GDP figure, offsetting falls in investment and inventories,
which took away 0.3 percentage points and 0.2 percentage points respectively.
“The eurozone cannot rely on this (exports) going forward
given current heightening global growth concerns,” Archer said.
Eurostat data showed Spain, the Netherlands, Portugal,
Greece, Italy, Cyprus were in recession after two, or more, consecutive quarters
of shrinking growth.
Spending by governments in the euro zone, constrained by a
drive to shore up public finances, did not make any contribution to GDP growth
in the first quarter. Neither did household consumption.
“Tight fiscal policy in many countries, tight credit
conditions, high and rising unemployment and muted global growth will continue
to weigh down on eurozone growth,” Archer said.
The eurozone economy might return to weak growth in the
second half of the year but unemployment looks certain to rise past its current
15-year high, according to a Reuters poll last month of 70 economists. It
predicted the eurozone economy would shrink by around 0.4% this year.
Archer said much depended on whether eurozone leaders could contain the bloc’s crisis. “However, we are increasingly leaning towards the view that Greece will end up leaving the eurozone. Consequently, we believe that the downside risks to eurozone GDP are rising appreciably,” he said.
