Europe’s Downturn Will Not Be As Bad As in 2008

According to EU’s statistics agency Eurostat, euro-zone gross domestic product fell 0.3% in the fourth quarter of 2011 from the previous quarter. That translates to a contraction of 1.3% at a seasonally adjusted annual rate. For 2011 as a whole, euro-zone GDP grew 1.5%, but at slower rate than in 2010, when GDP increased by 1.9%.

In Germany, despite last quarter’s 0.7% GDP contraction, at an annualized rate, the country’s output still grew 3% for 2011.Survey reports from businesses indicate that Europe’s largest economy is likely to expand again this quarter, although at a slow pace.

Countries closely tied to German industrial sector also felt a negative impact last quarter. The Netherlands, the second largest exporter to Germany after China, saw its GDP fall at a 2.8% rate. Austria’s GDP fell, too.

France was the only country recorded GDP growth, exceeding economist expectations for a modest contraction. Its GDP rose by 0.9% in the last quarter.

Economists define recession in Europe as two straight quarters of falling GDP. Italy contracted 2.9% from the previous quarter, at an annualized rate, the second straight quarter of falling GDP. Italian GDP will likely shrink further in early 2012. Greece, Portugal, the Netherlands and Belgium also had at least two consecutive quarters of GDP decline.

The euro zone economy accounts for about one-fifth of global GDP, hence its contraction could deteriorate the global recovery. If the euro zone isn’t growing, if there is a disorderly debt default in Greece and investors lose confidence in the ability of European policy makers to manage the crisis, then the spill over effect could be very significant to the rest of the world.

On a positive note, the euro-zone output decline was slightly less than economists had originally expected. That indicates a probability that Europe’s economic crisis won’t be as severe as the global one of 2008.

Source: Wall Street Journal

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