Eurozone continues to decline

The spectre of a double-dip recession raised its head in parts of Europe last month as fourth-quarter GDP data disappointed. This was particularly evident in Germany, which saw no growth in the last three months of 2009.

While the problems were not entirely unexpected and exports held up, the jobless rate also rose and the figures ignited fears that the recovery would not survive the withdrawal of stimulus measures.

This weakness was evident in much of the remainder of the eurozone as well and indeed the region as a whole only grew by 0.1% in the final quarter. The Italian economy was the first to do a proper double-dip, with GDP falling 0.2% in the final quarter, reversing growth of 0.6% in the third quarter. Spain has still not emerged from recession and saw its economy shrink by 0.1%. France was the only significant bright spot. It saw a 0.6% rise in GDP, which was better than expected.
In general, Germany’s bad news is the eurozone’s bad news – particularly as it is seen as the main source for bail-out funds if Spain, Portugal or Ireland follow in Greece’s unenviable footsteps. Having been studiously vague at the height of the crisis, Germany finally said its support for Greece would be political rather than financial.

The Greek situation may have passed its crisis point but worries rumbled on. That said, the country’s government did managed to get a €5bn (£4.53bn) bond issue away after the month-end, assuaging fears that international investors would turn their backs completely.

European Central Bank president Jean-Claude Trichet continued to insist recovery was on track and pressed ahead with the dismantling of the stimulus packages, though he admitted recovery would remain uneven. The effects of a weaker euro are already starting to be felt by some businesses and could help revive German growth although the eurozone’s purchasing managers’ index remained unchanged from January to February.

The European markets were substantially weaker than those of the UK and US in February. The FTSE Eurofirst index fell 0.23%, compared to rises of 3.2% for the FTSE 100 and 2.85% for the S&P 500. Only the Nikkei did worse, falling 0.85%. Of the individual markets, the French CAC fell 1.54% and the German Dax rose 0.2% but Spain’s Ibex was hit hard, falling 6.7%. The Europe ex UK grouping remains the worst-performing sector for the year to date. It is down 4.13%, compared to a fall of just 0.39% in the UK All Companies sector.