Bloomberg News

Euro Area Economy Probably Shrank for First Time Since 2009

February 15, 2012

(Updates with German, French GDP in second paragraph. For more on the European debt crisis, see EXT4.)

Feb. 15 (Bloomberg) -- Europe’s economy probably shrank in the fourth quarter for the first time in 2 1/2 years as the region’s debt crisis undermined confidence and prompted governments to toughen austerity measures, economists said.

Gross domestic product in the 17-nation euro area fell 0.4 percent from the prior three months, the biggest drop since the first quarter of 2009, according to the median forecast of 42 economists in a Bloomberg News survey. The European Union’s statistics office in Luxembourg releases the data at 11 a.m. today. Figures released earlier showed French GDP unexpectedly rose and Germany’s fell less than economists forecast.

Europe is facing its second recession in less than three years and Moody’s Investors Service cut the ratings of six of the region’s countries on Feb. 13, saying policy makers haven’t done enough to restore investor confidence. Euro-area finance ministers canceled a Brussels meeting slated for today and will hold a teleconference instead to prod Greece to do more to clinch an aid package it needs to make a March bond payment.

“The risk of a recession is very high,” said Gerd Hassel, an economist at BHF Bank AG in Frankfurt. “We’ll only see a very, very gradual recovery this year. Countries affected by the debt crisis will take a long time to overcome their difficulties.”

The statistics office is scheduled to publish the breakdown of fourth-quarter GDP next month.

German Contraction

In Germany, Europe’s largest economy, GDP dropped 0.2 percent from the third quarter, the first contraction in almost three years. France’s economy expanded by 0.2 percent, while economists forecast a 0.2 percent contraction, according to the median of 25 predictions.

Greece’s GDP slumped 7 percent in the fourth quarter from a year ago, according to a report yesterday. The economies of Spain, Belgium and Portugal also contracted in the final three months of 2011.

MAN SE, the German truckmaker controlled by car manufacturer Volkswagen AG, said yesterday that sales and operating profit will decline in 2012 as the debt crisis discourages companies from investing. There is “significant uncertainty regarding the economic environment,” the Munich- based company said in a statement.

Still, recent surveys indicate the pace of contraction won’t accelerate in the current quarter. Euro-region services output expanded in January after shrinking in the previous four months and economic confidence increased. German investor confidence jumped to a 10-month high in February.

ECB Action

Stocks have risen this year, with the MSCI All-Country gauge up 8.5 percent. The Stoxx Europe 600 Index, which had its best January in 14 years, has added 7.4 percent this year.

European Central Bank President Mario Draghi has pointed to signs of stabilization in the euro-area economy and said the ECB averted a serious credit shortage with its three-year loans to lenders in December.

European officials are continuing to press Greece to deliver the budget cuts required in exchange for a second bailout. Luxembourg Prime Minister Jean-Claude Juncker, chairman of the euro finance panel, said finance ministers will discuss “outstanding issues” during the conference call today and hold their next meeting as scheduled on Feb. 20.

“I did not yet receive the required political assurances from the leaders of the Greek coalition parties on the implementation of the program,” Juncker said in a statement yesterday. He also pressed for “further technical work” on Greek budget cuts.

International Pressure

More than two years after the debt crisis emerged in Greece, European leaders face international pressure to do more to tackle the source of contagion that threatens to drag down the global economy. Group of 20 nations have signaled they won’t reach a consensus on crisis aid for Europe via the International Monetary Fund at a Feb. 24-26 meeting of finance chiefs until Europe increases the size of its firewall.

Erik Nielsen, chief global economist at UniCredit SpA in London, said in an e-mailed note that Greece will be able to make a 14.5 billion-euro bond payment on March 20.

“I still think that the present deal will be done and that we’ll get through March 20, but I’m really wondering now whether so much damage has been done that this marriage no longer can be rescued,” he said. “Nobody can doubt that the Greek society is on the edge.”

Birkin Bags

Some companies are relying on faster-growing markets to bolster sales. Hermes International SCA, the French maker of Birkin bags, reported full-year sales on Feb. 9 that beat its own forecast, led by a 29 percent surge in Asia. The same day, Daimler AG forecast higher 2012 profit than analysts had predicted, propelled by record demand for Mercedes-Benz cars.

“The U.S. certainly is the bright spot as far as the development in the recent months is concerned,” Daimler Chief Executive Officer Dieter Zetsche said. “We see a buildup in momentum there. We’re bullish about the further development in China.”

--With assistance from Kristian Siedenburg in Budapest, Manus Cranny and Scott Hamilton in London and Richard Weiss in Frankfurt. Editors: Fergal O’Brien, Eddie Buckle

To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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