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Concern as euro zone economy shrinks

Tuesday, August 14, 2012 - 02:37

Aug.14 - Germany posts modest economic growth in the second quarter of the year and France stagnated, suggesting the euro zone as a whole contracted over the three months. Ciara Sutton reports.

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The stream of tourists through Berlin is constant but it seems growth in Germany isn't quite as assured. The euro zone's power house did manage 0.3 percent growth thanks to a robust labour market. But manufacturing orders were down as was industrial output. That's even raised the prospect of a German recession despite upbeat comments from the country's economics research institute. (SOUNDBITE) (German) HEAD OF GERMAN INSTITUTE FOR ECONOMIC RESEARCH (DIW), MARCEL FRATZSCHER, SAYING: "The 0.3 percent we saw today is what the markets had expected so it's not necessarily bad news but a clear indication that the German economy is slowing down. Personally I expect a slow-down not a recession." The euro zone as a whole contracted by 0.2 percent between April and June. France remained stagnant for the third consecutive quarter. And only three apart from Germany escaped recession - Austria, Finland and the Netherlands. Gareth Isaac is Senior Portfolio Manager at Schroders. (SOUNDBITE) (English) SENIOR PORTFOLIO MANAGER AT SCHRODERS, GARETH ISAAC, SAYING: "Germany is a massively export driven market. I think it is in Germany's interests to solve the European issue, and bring back some confidence to the market to generate those export markets." The data paints a bleak picture and fuels the growing global debate over the wisdom of tough austerity drives favoured by Germany. It may also - says Westpac's James Shugg - increase German euro-scepticism. (SOUNBITE) (English) CHIEF ECONOMIST AT WESTPAC JAMES SHUGG SAYING: "Germans themselves I think are very split about the euro and the contribution that they are prepared to make to ensure its survival. At some point, the cost of that contribution may be seen as greater than the cost to Germany leaving the euro. Now I don't think Germany wants to be blamed for the history books of the demise of the euro but not be too unhappy if some other country were to exit first." Greece is that other country - it's economy has shrunk by a record 6.2 percent year-on-year. And it's a catch 22 situation for much of southern Europe - the bigger the austerity drive the worse the contraction (SOUNDBITE) (English) SENIOR PORTFOLIO MANAGER AT SCHRODERS, GARETH ISAAC, SAYING: "It's especially difficult for the southern states if they are trying to restructure and be more austere in an environment where you've got quite a slowing global economy." Many economist fear there is worse to come saying the ECB must intervene soon to tackle the debt crisis. Otherwise even Germany may not defy gravity for much longer. Ciara Sutton, Reuters

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Concern as euro zone economy shrinks

Tuesday, August 14, 2012 - 02:37