Eurozone Economy Contracts For The First Time

The eurozone economy has contracted for the first time since the launch of the euro a decade ago.

Gross domestic product in the 15-country region fell by 0.2% in the second quarter, reported Eurostat, the European Union’s statistical office. That marked a sharp turnaround from the first three months of the year, when GDP expanded by 0.7%.

Eurozone inflation hit a record 4 % in July, which is holding back the ECB from cutting nterest rates.

Germany’s economy – Europe’s largest – contracted by 0.5% in the three months ended June.

Michael Glos, Germany's economics minister, said a weaker second quarter had been expected but Germany had improved “by a good measure” its international competitiveness and resistance to global shocks. Berlin stood by its forecast for overall German growth of 1.7 % this year, down from 2.5% in 2007.

France reported a significantly worse-than-expected 0.3% cent fall in second quarter GDP, after a 0.4% rise in the first three months of the year.

Christine Lagarde, the French finance minister, down played the possibility of a recession. There is “no question of a recession” with the fundamentals of the country’s economy remaining healthy, she said..

Spain saw a sharp deceleration in economic activity – although GDP growth remained positive, at 0.1% in the first quarter.

As in the United States, housing has been at the forefront of economic problems in Europe.