(RTTNews) - The Eurozone economy shrank in the fourth quarter at the fastest pace since records began in 1995. The weaker data strengthened expectations of further rate cuts from the European Central Bank to support the sinking economy.

According to flash estimates published by Eurostat, the Eurozone GDP contracted 1.5% sequentially in the fourth quarter, larger than the 0.2% decline seen in the second and third quarters of 2008. Economists were expecting a sequential fall of 1.3%.

Compared with the same quarter of the previous year, seasonally adjusted GDP decreased 1.2% in the fourth quarter, reversing an increase of 0.6% in the third quarter. The decline in the fourth quarter was slightly bigger than the expected decrease of 1.1%.

The economic contraction in the fourth quarter was larger than in the U.S., where GDP decreased 1% from the previous quarter, after a 0.1% fall in the third quarter.

The EU 27 economy also shrank 1.5% in the fourth quarter, following a negative growth of 0.2% in the prior quarter. Year-on-year, GDP in the EU 27 fell 1.1%, following a 0.8% increase in the third quarter, the Luxembourg based statistical office said.

Over the whole year 2008, GDP grew 0.7% in the euro area and 0.9% in the EU27.

Almost all major Eurozone economies entered deep recession in the fourth quarter.

The German economy contracted 2.1% in the fourth quarter, the largest quarter-on-quarter decrease ever recorded in united Germany. The economy shrank 0.5% each in the second and third quarters of 2008.

However, the second largest Eurozone economy escaped technical recession. Two consecutive quarters of decline in GDP defines recession. French gross domestic product fell 1.2% in the fourth quarter, following a 0.1% growth in the prior quarter.

Spanish GDP declined in the fourth quarter, confirming its first recession in 15 years. The economy fell 1% sequentially in the fourth quarter, following a 0.3% drop in the third quarter. For the whole year of 2008, the economy logged a real growth of 1.2%.

Italy showed the sharpest fall in GDP since the beginning of historic series in 1980. Italian GDP was down 1.8% quarter-on-quarter, after recording a 0.6% fall in the third quarter. Year-on-year, the economy shrank 2.6%.

Commenting on the Eurozone GDP data, Christoph Weil, an economist at Commerzbank said, “The eurozone economy is in its deepest recession since the end of the Second World War.”

Weil said a further decline in real GDP by just under 1% is emerging for the first quarter of 2009. Economists do not expect the Eurozone economy to stabilize until midyear, when the extensive economic stimulus programmes and rate cuts by the ECB will gradually start to show a positive impact. Weil expects the ECB to cut the interest rate to 1% in the spring.

In February, the European Central Bank had left its key interest rate unchanged after reducing the rate four times since October 2008. The Governing Council left its interest rate on the main refinancing operations at 2%.

For comments and feedback: contact editorial@rttnews.com

Copyright(c) 2009 RealTimeTraders.com, Inc. All Rights Reserved

Posted in Categories: Economy, Eurozone, Forex, Releases, Stocks, USA.

Subscribe by RSS Subscribe by Email