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November 14, 2008    

Eurozone enters first-ever recession

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by Kay Murchie

Official figures show that the eurozone has fallen into recession after the economy contracted by 0.2% in the third quarter. This follows a 0.2% contraction in the previous quarter from April to June.

Economists say the news is no surprise after it was announced yesterday that Germany, which is Europe’s largest economy, is now in recession.

A country is considered to be in recession when it experiences two consecutive quarters of negative growth.

In the meantime, Spain’s economy also shrank in the third quarter, the first fall in 15 years. However, France has announced positive growth for the third quarter of this year.

Gross Domestic Product (GDP) in France shrank 0.3% in the second quarter, but figures today revealed that the country’s economy grew 0.14% in the June to September period.

Meanwhile, the Bank of England’s quarterly inflation report released earlier this week warned that the UK is heading for a prolonged recession.

According to the Bank’s Governor, Mervyn King, it is very likely that the UK economy entered a recession in the second half of this year, and added that it is difficult to know precisely how long it will last.

However, analysts fear that the worst is yet to come for the eurozone. Gilles Moec, senior economist at the Bank of America, said looking forward, further quarters of negative GDP growth can be expected.

The member states of the eurozone are France, Italy, Germany, Belgium, the Irish Republic, the Netherlands, Luxembourg, Spain, Portugal, Slovenia, Malta, Greece, Austria, Finland and Cyprus.

Further indications that the eurozone has entered recession come from the Organisation for Economic Co-operation and Development (OECD) who have forecast a ‘protracted slowdown’ for the world’s major economies.

The Paris-based think tank has forecast a fall in US economic activity of 0.9% in 2009, with the eurozone and Japan contracting by 0.5% and 0.1% respectively.

The organisation said the financial crisis and the housing market downturn are the main cause of the economic slowdown.

However, the body said the US and the euro area economies will begin to grow again in the third quarter of 2009.

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