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Euro zone shrinks into longest ever recession

Wednesday, May 15, 2013 - 02:13

May 15 - Germany's economy crept back into growth at the start of the year but not by enough to stop the euro zone from contracting for a sixth straight quarter. And as Ivor Bennett reports France worried many with a slide into recession.

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The red carpet is a must at Cannes. But while it's rolled out for the famous film festival, the rest of France won't be celebrating. Red's not just the colour of the carpet, but the country's economy too. It shrank by 0.2 percent in the first quarter this year, dragging France back into recession. It's still the euro zone's second largest economy, but according to Carsten Brzeski from ING, it's also now second tier. SOUNDBITE (English) CARSTEN BRZESKI, SENIOR ECONOMIST, ING, SAYING: "I think they clearly are in the periphery. You could even argue that it's worse because we do see in the peripheral countries that structural reforms have been done. And we do see some very vague light at the end of the tunnel in Spain, in Greece, because there we do see that these structural reforms are working. In France nothing has happened so far. so I would rather be prepared for another couple of years of really far below trend growth in France which means further de-coupling away from the German economy." But it's not just France that's under the weather. Storm clouds are hanging over the whole bloc. The euro zone's now shrunk for 6th consecutive quarters, making this its longest recession ever. Commerzbank's Joerg Kraemer. SOUNDBITE (English) JOERG KRAEMER, CHIEF ECONOMIST, COMMERZBANK, SAYING: "Usually a recession lasts only 2, 3, maximum 4 quarters. but 6 quarters is a lot. And to make the thing worse, the forward looking leading indicators such as the euro zone PMI, these indicators have declined two months ina row. Therefore we really have a problem in the euro zone." And it doesn't get much worse than Italy. The euro zone's third largest economy shrunk by 0.5 percent last quarter - a record seventh straight contraction. As for the bloc's engine room, the cogs are still turning but only just. Germany narrowly dodged recession with growth of just 0.1 percent - much worse than expected. It is forecast to bounce back - the weak growth down to the extreme winter. But the same can't be said for the rest of Europe. With Portugal, Spain, Holland and Finland all in recession, analysts say growth won't return until well into 2014.

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Euro zone shrinks into longest ever recession

Wednesday, May 15, 2013 - 02:13