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August 14, 2008

Eurozone economy contracts, fears of a recession


by Kay Murchie
”Eurozone

The eurozone is heading towards a recession after Europe’s largest economy, Germany, shrank by 0.5% in the second quarter compared with the first quarter of the year - the first fall in four years.

Figures released from the European Union Statistics Office also revealed that in both France and Italy, GDP shrank by 0.3% in the second quarter. However, following the news, Christine Lagarde, France’s Finance Minister, shrugged off talk of recession and said it is ‘out of the question‘.

Meanwhile, according to deputy economy minister ,Walther Otremba, Germany‘s economy could contract again in the next quarter, meaning the country would be officially in recession. It cannot be ruled out said Mr Otremba.

Germany was once seen as the main driver of growth in the eurozone.

In Estonia, the economy shrunk for the second consecutive quarter and is now officially in recession.

However, in the wider European community of 27 nations including the UK, the slowdown was less pronounced, after the economy contracted by 0.1%.

Exporters have been hit by the strength of the euro, which makes their products more expensive overseas, and a more general slowdown in global demand.

The only one of the major eurozone economies to see its economy grow between the second quarter was Spain, as it expanded by 0.1% compared with the previous quarter.

Further evidence of a recession in the UK comes as the pound fell to a 22-month low against the dollar.

Yesterday, delivering the Bank of England’s August Inflation Report, Mervyn King said the next year is to be a difficult one, with inflation high and output broadly flat.

The Bank does not expect the UK economy to grow at all over the next 12 months after Mr King, Governor of the Bank of England, said that the British economy is going through a difficult and painful adjustment and has not ruled out a recession.

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