Eurozone recession deepens; growth forecasts slashed

BRUSSELS/FRANKFURT (AFP) - Collapsing exports and dwindling business investment pushed the eurozone economy into the deepest contraction in the bloc's 10-year history, official EU data showed on Thursday.
After pulling back only 0.2 percent in the third quarter, the eurozone economy shrank by 1.5 percent in the final three months of 2008 from the level the previous quarter, the Eurostat data agency said, confirming a first estimate.
The dramatic deterioration was driven by a 7.3-percent drop in exports in the fourth quarter while business investment fell by 2.7 percent in the face of a global economic and financial crisis.
"With the global economic downturn picking up speed and credit conditions likely to continue to tighten, we expect further sharp falls to come," said Ben May at consultants Capital Economics. "Worryingly, falling inflation and low levels of household debt were not enough to prevent consumer spending from falling by 0.9 percent," he added.
On a 12-month basis, the eurozone economy contracted by 1.3 percent in the final quarter last year after growing 0.6 percent in the third quarter, Eurostat said.
However, for the whole of 2008, including before the financial crisis' dramatic turn for the worse in September, the eurozone economy eked out growth of 0.8 percent, down sharply from the 2.6 percent recorded in 2007.
Eurostat's data also showed that the 27-nation EU economy also shrank by 1.5 percent in the last three quarters of 2008, bringing the slump over 12 months to 1.3 percent.
Meanwhirl, the European Central Bank said Thursday it expected the eurozone economy to shrink by 2.7 percent in 2009, slashing its previous forecast of a contraction of 0.5 percent. Releasing new forecasts after it cut interest rates to a record low of 1.5 percent, the ECB also said it expected zero growth next year in the 16-nation eurozone, down from its previous estimate of growth of 1.0 percent. The forecasts, drawn up by central bank staff, said output this year could range from minus 2.2pc to minus 3.2pc. Official EU data showed on Thursday that collapsing exports and dwindling business investment had pushed the eurozone economy into the deepest contraction in the bloc's 10-year history.
After pulling back only 0.2 percent in the third quarter, the eurozone economy shrank by 1.5 percent in the final three months of 2008 from the level the previous quarter, the Eurostat data agency said.
However, for the whole of 2008, including the period before the financial crisis took a dramatic turn for the worse in September, the eurozone economy eked out growth of 0.8 percent, down sharply from the 2.6 percent recorded in 2007.
The ECB also slashed its forecasts for inflation in the eurozone to 0.4 percent in 2009 from its projection in December of 1.4 percent. For next year, prices are set to rise 1.0 percent, a downward revision from 1.8 percent.