The 17-member euro zone has slipped into recession following
two quarters of economic output contraction, the first time
it has been in recession since it experienced five
consecutive quarters of recession leading up to 2009.
While the deepening European woes may seem far afield from
New Zealand, Europe is China's largest customer and any
Chinese contraction, or expansion, is felt in New Zealand and
News of the euro zone recession came a day after millions of
Europeans held rallies against increasingly stringent
austerity measures; protests in Portugal, Spain and Italy
were marred by violence.
A rebound in the euro zone could be vital for the rest of the
world as the US and China struggle with the impact of the
crisis on their companies' ability to grow and prosper.
European equities extended their losses yesterday, echoing a
sharp decline overnight on Wall Street in the US, as the
rising threat to global growth from the US and Europe
prompted investors to reduce their exposure to risky assets,
The euro zone quarterly economic output to September fell
0.1% in the third quarter following a 0.2% decline in the
second quarter, forcing the euro zone's 9.4 trillion ($NZ14.8
trillion) economy officially into recession.
Italy and Spain have been in contraction for a year already
and Greece is suffering an outright depression.
Craigs Investment Partners broker Peter McIntyre said between
the deepening European crisis and the $US607 billion
($NZ748.4 billion) "fiscal cliff" of tax hikes and public
spending cuts being faced by the United States, investors,
consumers and businesses are subsequently "sitting on"
billion of dollars in savings and adopting a "wait and see"
"Without investment in businesses or consumer spending, the
economic wheels will start turning slower and slower," he
He cited recent retail data out of the US, Australia and New
Zealand which showed recent downturns in retail spending.
Germany and France, the euro zone's biggest economies, could
not save the bloc from a double-dip recession even though
both countries managed 0.2% growth in the quarter, Reuters
Large, countries like Italy, Spain and the Netherlands all
contracted and Belgium, a big exporter, stagnated.
Mr McIntyre said "We're seeing the problems moving into the
core [of Europe]. Germany has been the one showing strength."
Paul De Grauwe, an economist with the London School of
Economics, said Europe was getting into a double-dip
recession "which is entirely self-made".
"It is a result of excessive austerity in southern countries
and unwillingness in the north to do anything else," he said.
Not everyone shares that view and the European Commission
said labour costs were falling and exports rising in Greece,
Portugal, Spain and Ireland. It said austerity was a
necessary evil to bring down unsustainable budget deficits.
The European Commission sees a 0.4% contraction for the euro
zone in all of 2012.
Hopes for a recovery next year are also fading, with the
European Commission saying the economy will grow just 0.1% in