Euro Area Relapses Into Technical Recession

Euro Area Relapses Into Technical Recession

The euro area's third GDP data released today signaled that the 17-nation region has technically relapsed into recession after contracting for two consecutive quarters as the debt crisis continue to dampen growth.

Euro area contracted 0.1% in the three months through September, following a contraction of 0.2% in the second quarter to experience a technical stagnation.

On the yearly basis, the euro zone contraction widened to 0.6% from a revised of 0.4% drop.

For sure, the three-year-old debt crisis is still weighing on growth prospects in the region as many European nations are adopting sharp austerity measures to comply with the EU ceiling of 3% budget deficit, thereby shaving growth and pushing unemployment to unsustainable levels.

European composite of manufacturing and services showed a contraction for the ninth consecutive month in October, suggesting the economy will continue deterioration with the beginning of the fourth quarter.

By the same token, the ECB bulletin for November's monetary decision mentioned that economic activity in the euro area is expected to remain weak, especially in the second half of 2012 as all indicators to refer to this, while in 2013 growth momentum is likely to remain anemic since the risks surrounding the economic outlook for the euro area remain on the downside.

The ECB cut its growth forecasts as it now foresees a contraction of 0.5% this year, which higher than the 0.3% contraction anticipated three months ago, while lowered growth forecasts for 2013 to 0.3% from prior estimates of 0.6%.