Europe on the edge of recession

Posted: August 16, 2012

LONDON - Europe is edging closer to recession, dragged down by the crippling debt of the 17 countries that use the euro, official figures showed Tuesday.

Eurostat, Europe's statistics agency, revealed that the economies of both the eurozone and the European Union, which has 27 countries, shrank by a quarterly rate of 0.2 percent in the second quarter of the year. In the first quarter, output for both regions was flat. A recession is officially defined as two straight quarters of falling output.

Europe's debt woes have been blamed for the sharp deterioration in the global economic outlook over the last few months. The region is the U.S.'s largest export customer, and any fall-off in demand will hit order books - as well as President Obama's election prospects.

The 17-country eurozone is grappling with sky-high debt and record unemployment of 11.2 percent. Compared with the second quarter of last year, the eurozone's economy is 0.4 percent smaller.

The region's economy would have slipped into recession had it not been for better-than-expected GDP figures from its two leading economies, Germany and France. Germany, Europe's biggest economy, posted quarterly growth of 0.3 percent, better than the 0.2 percent forecast. France also beat expectations of a small contraction in its output to record no change in its economy for the second quarter.

The European Union, which has a population of 500 million, recorded a GDP last year of $15.5 trillion - slightly more than the U.S. output. It is also a major source of sales for the world's leading companies. Forty percent of McDonald's global revenue comes from Europe, more than it generates in the United States. General Motors, meanwhile, sold 1.7 million vehicles in Europe last year, a fifth of its worldwide total.

The region's stumbling economy is making it harder for other economies to grow. Policymakers around the world are urging more decisive action - particularly from the European Central Bank - to deal with the crippling debt crisis to restore confidence to the global economy.

Markets have grown more optimistic recently that Europe's firefighting efforts will pick up the pace. That positive tone continued Tuesday, largely because of the figures out of Germany. The Stoxx 50 index of leading European shares was up 0.6 percent while the euro rose another 0.1 percent to $1.2350.

Germany currently benefits from strong demand for its products, but its high-value exporters are finding it increasingly difficult to tap international markets. Forward-looking surveys, including Tuesday's closely monitored ZEW survey of German investor sentiment, are suggesting that confidence is taking a knock as Europe moves from one crisis point to another.

The 16 other countries that use the euro are Germany's biggest export market, and six of them - Greece, Spain, Italy, Cyprus, Malta and Portugal - are in recession. The U.S. recently recorded GDP growth of 0.4 percent in the second quarter, according to Eurostat, less than the growth in the first quarter.

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