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.
photo: Bloomberg
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.
