Euro plunges as eurozone recession deepens

Euro currency
exchange rates have plunged today (February 15th) following a
disappointing report that shows the single currency region’s
economy continued to decline in the final months of last
year. 

The official statistics bureau for the European Union (EU)
Eurostat revealed yesterday evening that the economic output for
the area shrank by 0.6 per cent in the October-December period of
2012.

Not only was this a worse-than-anticipated result for the
17-nation bloc, but it marked the first time since records began in
2009 that the eurozone suffered continual quarterly shrinkage for
an entire calendar year. 

The fourth-quarter contraction was the sharpest in the region’s
history and follows news that major powers including Germany,
France and Italy all suffered from disappointing declines in gross
domestic product (GDP) in the fourth quarter. 

Leaders and a run of recent reports had indicated the worst was
over for the eurozone, but this data has reignited old fears of the
poor state of financial health the single currency bloc is still
grappling with. 

Recession is defined as two consecutive quarters of economic
contraction and some had hoped the eurozone would be able to hoist
itself out of this worrying trend of decline. 

In the first quarter of 2012, the state of growth was flat for
the single currency region, with this being followed by 0.2 per
cent contraction in the second quarter and 0.1 per cent shrinkage
in the July-September period.

Over the course of the fourth quarter, the largest economy in
both the eurozone and the wider European Union, Germany, suffered
the deepest reduction in GDP activity since the height of the
financial crisis, with its output sliding by 0.6 per cent as a
result of poor export trade. 

Similarly, the French economy suffered with a 0.3 per cent
shrinkage in the fourth quarter, while Italy’s economy contracted
by 0.9 per cent.

As such, the French finance minister Pierre Moscovici admitted
on French radio that the government may need to rethink its growth
forecast of 0.8 per cent for the coming year. 

He commented: “We note that the figure for 2012 is not good [at]
around zero and so we also know that growth for 2013 will have to
be re-thought.” 

However, he noted that he did not want to lock France into
recession by implementing further austerity measures like Italy,
which has been in recession since 2011 and is dealing with harsh
cuts and saving schemes aimed at reducing the country’s gaping
deficit and rebuilding its reputation as a nation that is safe to
lend to.

Eurostat revealed that in addition to Italy, six other countries
are in recession, with Greece, Spain, Cyprus, the Netherlands,
Portugal and Finland suffering from decreasing output. 

The eurozone is also concerned by the relative strength of the
euro, as the single currency’s continued appreciation could make
goods produced by the 17-nation bloc less attractive to overseas
trading partners. 

But despite this sobering news, many economists continue to be
optimistic about the economic future of the eurozone, with members
of the European Central Bank predicting a rise in output later this
year, although the strong single currency could dampen progress if
its appreciation continues. 

At 10:25 GMT, the euro retreated against all of its major
trading partners, dipping by 0.1 per cent versus the pound to 0.861
GBP and by 0.2 per cent in trading with the dollar to 1.333
USD.