Frankfurt:
The sovereign debt crisis brought economic growth all across the euro
area to a standstill and even pushed a number of countries into
recession at the end of last year, data showed on Wednesday.
Germany,
the single currency area’s biggest economy, saw its gross domestic
product (GDP) shrink by 0.2% in the fourth quarter of 2011, as the
long-running debt crisis slammed exports, its traditional engine of
growth.
In Austria, too, the economy contracted slightly in the
period from October to December as weak global demand hit exports and
consumption at home fell.
The
situation was worse in the Netherlands, Italy and the Czech Republic
which all found themselves in recession, technically defined as two
consecutive quarters of GDP contraction. Among the euro zone
countries to publish preliminary fourth-quarter GDP data so far, only
France saw its economy expand, notching up surprise growth of 0.2% in
the final quarter of last year.
Analysts said that at first
glance the data did not appear to be as dire as expected and, on the
basis of the country figures released so far, the euro zone economy as a
whole contracted by rather less than expected at the end of last year.
“Coupled
with the recent improvement in some of the leading indicators, (the
data) may raise hopes that the region will expand again in the first
quarter and hence avoid a technical recession,” said Jonathan Loynes,
chief European economist at Capital Economics in London.
But there were also reasons to be cautious, he warned.
“For
a start, what details of the breakdown of growth we have at this stage
are not particularly encouraging. Much of the upside surprise on French
GDP came from a drop in imports, while consumer spending and net trade
were both negative in Germany,” he said.
“And more generally, with
Greece still on the edge of disaster and the fiscal crisis deepening,
the euro zone economy faces enormous challenges in 2012.”
In the case of Germany, at least, analysts predicted the lull in growth at year-end would likely be short-lived.
The
dip in GDP was “not as deep as expected, confirming that the German
economy only took a growth pause and is not approaching a new
recession,” said Carsten Brzeski, economist at ING Belgium.
“Of
course, a quick rebound is not (automatic) and the big unknown for the
German economy remains the sovereign debt crisis. One thing, however, is
obvious -- today’s numbers are no reason at all to start singing swan
songs on the German economy,” Brzeski said.
Among the reasons pointing to an early return to growth was the low risk of a credit crunch, the analyst argued.
Contrary to many European peers, German banks have not tightened lending conditions, at least for now, he said.
Low
inventories and a still high backlog of orders would act as “an
important safety net for industry, ensuring production even if demand
for German products would weaken,” he said.
Many of Germany’s
most important trading partners are outside the euro zone so exports
could benefit from a pick-up elsewhere even if Europe slips into
recession.
Finally, a sound labour market would ensure that
domestic demand, which has actually taken over from exports as the main
driver of growth, would remain strong, the analyst said.
Annalisa Piazza at Newedge Strategy also believed the fourth-quarter GDP data were “a touch less gloomy than expected.”
It
was “the first contraction in activity since early 2009 and -- in our
view -- just a one-off event,” the analyst said, predicting a “modest
improvement already in the first half.”
The “solid structure of
the economy is acting as a cushion to external shocks and there are no
major risks of a deep recession,” she said.
UniCredit economist Alexander Koch agreed.
“The
latest broad-based weakness in the official figures does not herald
another negative quarter or even a deeper recession,” he said.
Although
downside risks from the debt crisis persist, and the recent very cold
winter weather could also weigh on growth in the first quarter, “we’re
sticking to our quarterly growth path for this year, with an increase of
0.2% in the first quarter and a further moderate pick-up afterwards,”
Koch said.
