Eurozone GDP shrinks by 2.5%

By Pan Pylas  |   2009-5-16  |     NEWSPAPER EDITION

THE economy in the 16 countries that use the euro shrank by a massive 2.5 percent in the first quarter as a global recession sapped the industrial exports that Europe relies on for growth and jobs.

Germany, the eurozone's biggest economy, saw output plunge by 3.8 percent as demand for its cars and factory machinery collapsed.

The eurozone has now seen output decline for four consecutive quarters.

The first-quarter slump is the biggest since figures began in 1995, but most analysts believe the region is in its worst slump since the end of World War II.

"This sharp decline very probably will not be repeated," German government spokesman Thomas Steg said of his country's figures at a regular news conference in Berlin. "We will now wait and see what happens, but there are clear indications that the first quarter will have been the most difficult."

The drop was bigger than the 1.6 percent decline recorded in the United States.

"As soon as the boost from lower inflation and interest rates starts kicking in, households and firms will have more scope to make some of the decisions presumably postponed because of heightened uncertainty," said Daniele Antonucci, European economist at Capital Economics.

The first-quarter drop in the euro zone, compared to the previous quarter, was far more than the consensus expectation just a few days ago, when most economists were predicting a quarterly decline of about 2 percent. But figures showed that industrial production - key to the European economy - was suffering worse than expected.

On an annual basis, the euro zone economy contracted by 4.6 percent, over three times as bad as the 1.4 percent decline recorded in the fourth quarter of 2008.