Eurozone avoids recession by the skin of its teeth

The eurozone economy has remained static in the first quarter of 2012, posting zero growth and narrowly avoiding falling back into recession.

The eurozone shrank by 0.3 per cent in the final quarter of 2011. Most analysts expected to see another small shrinkage.

Germany’s GDP growth of 0.5 per cent helped keep the figures level but a widening fissure appears to be developing between northern and southern European economies.

Howard Archer, Chief UK & European Economist at IHS Global said: Flat quarter-on-quarter Eurozone GDP was primarily due to modest overall expansion in the core northern Eurozone economies led by Germany countering appreciable overall contraction in the struggling southern periphery countries led by Italy.”

Germany was boosted by stronger domestic consumption and increased exports and put behind last quarter’s 0.2 per cent dip.

The French economy remained flat in the first quarter of 2012, after growing by 0.1 per cent in the final three months of 2011.

Italy’s economy shrank by 0.8 per cent and Spain’s by 0.3 per cent.

Some analysts believe the economic data from the eurozone in the first quarter may just provide a temporary respite as the underlying weakness in many countries shows no sign of changing with low demand, high unemployment, big cutbacks in government spending and a lack of business confidence to encourage investment.

Looking forward to the second quarter of 2012, Howard Archer, said: “We fear that renewed Eurozone GDP contraction is very much on the cards for the second quarter as latest survey evidence has been largely disappointing and softer.”

Recent PMI surveys show steep contractions in the private sector of many eurozone countries which are expected to hinder growth.