Dec. 6 (Bloomberg) -- The euro-area economy was pushed into a recession for the second time in four years as trade slowed and government spending declined.
Gross domestic product in the 17-nation currency bloc slipped 0.1 percent in the third quarter from the previous three months, when it fell 0.2 percent, the European Union’s statistics office in Luxembourg said today, confirming an initial estimate published on Nov. 15. Gross fixed capital formation dropped 0.7 percent from the previous three months, when it fell 1.8 percent, while consumer spending was unchanged. Government spending declined 0.2 percent after a 0.1 percent drop in the second quarter.
European governments, fighting the sovereign debt crisis that started in 2009, on Nov. 27 eased the terms on emergency aid for Greece and are counting on a bond buyback as a market-based way of cutting the country’s debt, paving the way for continued aid payouts. Economists question whether that will be enough to keep the country in the single currency.
“Greece will continue to go deeper into depression next year and possibly the year after that,” Megan Greene, director of European economics at Roubini Global Economics LLC, said in an interview on Bloomberg Radio on Dec. 4. “The troika will be willing to just throw money at Greece until at least we’ve had the German elections and Spain and Italy by then will have asked for support from the bailout funds and the ECB.”
Euro-region exports rose 0.9 percent in the second quarter from the previous three months, when they advanced 1.6 percent, today’s report showed. Imports increased 0.2 percent after a 0.6 percent rise.
In Germany, Europe’s largest economy, GDP rose 0.2 percent in the third quarter, down from 0.3 percent in the previous three months. France’s economy expanded 0.2 percent, while Italy’s GDP fell 0.2 percent. In Spain, which locked in a bank bailout earlier this year, GDP declined 0.3 percent. The economies of Cyprus, Austria, Portugal and the Netherlands also contracted.
With Germany, which leads the creditor governments, going to the polls next year, Roubini’s Greene sees Greece exiting the euro in the final quarter of 2013 or in early 2014 after a vote on the 2014 budget may trigger a collapse of the government.
Euro-area finance ministers meet Dec. 13 to decide on releasing Greece’s next aid payment and possibly wrap up bailout talks with Cyprus, the fifth country in the single-currency bloc to seek international aid since the crisis erupted.
ECB Rate Meeting
European Central Bank President Mario Draghi, who today hosts the bank’s Governing Council meeting in Frankfurt, has pledged to do whatever it takes to save the euro and announced an unlimited government bond-purchase program. Spain has hesitated to request a full bailout.
Greece leaving the euro “might be in their best interest,” David Watts, an analyst at CreditSights Inc., said on Bloomberg Television’s “On the Move Asia” on Dec. 4. “As far as the euro zone is concerned and as far as presenting a united front to investors an exit of a country would be a very grievous blow.”
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