Europe ‘on edge of recession’ as world economy slumps

August 14th, 2008 - 7:32 pm ICT by IANS  

Berlin, Aug 14 (DPA) The European economy shrank during the second quarter, data released Thursday showed, amid worries that the region’s slowdown could accelerate further. The 15-member eurozone contracted by 0.2 percent during the three months to the end of June, the European Commission’s Statistics Office Eurostat said, as high inflation hit consumer spending and a strong euro as well as weaker global growth undercut the currency bloc’s export machine

“The eurozone economy is on the edge of a recession,” said Commerzbank economists Christoph Weil and Michael Schubert in a note to clients.

The eurozone grew quarter on quarter at 0.7 percent during the first three months of the year. The second-quarter growth rate was in line with analysts’ forecasts.

At the same time, year-on-year growth in the eurozone slipped back from 2.1 percent in the first quarter to 1.5 percent in the three months to the end of June, Eurostat said.

Earlier in the day the eurozone’s two biggest economies also reported a contraction in the second quarter, with the German economy shrinking by a less-than-forecast 0.5 percent after the currency bloc’s biggest economy grew at a revised 1.3 percent during the first quarter.

Nevertheless, it was the first fall in the German economy in almost four years.

Data published Thursday showed economic growth in France slowing from 0.4 percent during the first quarter to a bigger-than-forecast 0.3-percent slump in the latest three months.

The second-quarter contraction in France represented the first time in about five years that the economy has shrunk in the eurozone’s second biggest member.

Eurostat said Thursday annual consumer prices posted a 4-percent gain in July, down slightly down from its preliminary 4.1-percent estimate.

Comments last week from European Central Bank (ECB) chief Jean-Claude Trichet that the eurozone economy faced weak growth in the coming months resulted in the euro suffering its biggest weekly drop, pushing the common currency down to near a six-month low against the greenback of about 1.50 dollars.

Moreover, the slowing growth is likely to help to dampen inflationary pressures in the coming months and mean that interest rates in the eurozone will be on hold for sometime.

In its monthly report released Thursday, the ECB insisted that it remained focused on the threat posed by inflation.

But it warned that “the uncertainty surrounding (the) outlook for economic activity remains high, owing, among other things, to the very high and volatile levels of commodity prices and the ongoing tensions in financial markets.

“Overall, downside risks prevail,” the bank’s monthly bulletin said.

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