The euro zone slipped deeper into recession than economists expected in the fourth quarter of 2012 as Germany and France– the region’s two largest economies – shrank 0.6 percent and 0.3 percent respectively on a quarterly basis.
The data is a reminder of the plight still facing the euro zone as it struggles to shake off a three-year debt crisis, which the region has sought to fight with harsh, growth-crimping austerity.
The European Central Bank’s promise to buy the bonds of struggling sovereigns has spurred investors back into those markets and helped reduce borrowing costs. While one trillion euros of cheap funding made available to banks in late 2011 and early 2012 also gave investors greater confidence, the benefits of such policies have yet to translate into improvements in the real economy.
According to David Schnautz, interest rate strategist, at Commerzbank:
The gap is still widening between what the market is pricing in and what the real economy or the overall situation actually justifies. The Spanish Q4 GDP number was a very nasty reminder that things are still in the doldrums there.
Spain, the euro zone’s fourth largest economy, released figures two weeks ago which showed it remained mired in recession after a 0.7 percent contraction in the fourth quarter. Data this week shows Italy’s GDP fell by 0.9 percent – its sixth successive quarterly fall.