BRUSSELS: The euro zone debt crisis dragged the bloc into its second recession since 2009 in the third quarter despite modest growth in Germany and France, data showed yesterday.
The French and German economies both managed 0.2 per cent growth in the July-to-September period but their resilience could not save the 17-nation bloc from contraction as the likes of The Netherlands, Spain, Italy and Austria shrank. Economic output in the euro zone fell 0.1pc in the quarter, following a 0.2pc drop in the second quarter.
Those two quarters of contraction put the euro zone's 9.4 trillion euro ($12trn) economy back into recession, although Italy and Spain have been contracting for a year already and Greece is suffering an outright depression.
A rebound in Europe is still far off. The debt crisis that began in Greece in late 2009 is still reverberating around the globe and holding back a lasting recovery.
Analysts said even the euro zone's top two economies were likely to succumb in the final three months of the year.
"That was the last good number for Germany for the time being," said Commerzbank chief economist Joerg Kraemer. "I don't expect the German economy to return to decent growth rates until the middle of next year."
Most economists expect Germany to contract in the fourth quarter for the first time since the end of 2011. And where Germany goes, France is likely to follow.
"We expect the French economy to contract again in the final quarter of this year," said Joost Beaumont of ABN Amro.
For all of 2012, the European Commission (EC) sees the euro zone contracting 0.4pc, while growing just 0.1pc in 2013. Business surveys point to difficult times ahead and the public's backlash to austerity policies is growing.
A poll of economists predicted the bloc's new recession will extend until the end of the year and 2013 promises little better than stagnation. Conducted before yesterday's data were released, the consensus was for a 2012 contraction of 0.5pc and just 0.1pc growth next year.
Millions of workers went on strike across Europe on Wednesday to protest against the government spending cuts they say are driving the region into a deeper malaise but which Germany and the EC say are crucial to healing the wounds of a decade-long, credit-fuelled boom.
"We are now getting into a double-dip recession which is entirely self-made," said London School of Economics economist Paul De Grauwe. "It is a result of excessive austerity in southern countries and unwillingness in the north to do anything else," he said.
The EC says the euro zone's economies will be much healthier overall next year than in 2009, which was the nadir of bloated budgets when Greece's fiscal deficit reached a record 15.6pc of GDP and Ireland was not far off at 13.9pc.
The threat of a euro zone break up has also diminished after the European Central Bank promised to buy euro zone government bonds in potentially unlimited amounts, should a country first seek help from the bloc's permanent rescue fund.
There have been fledgling signs the Italian economy is improving. Consumer confidence has risen and the pace at which industrial output has fallen is slowing.
Nonetheless, the country's "acquired growth" at the end of the third quarter stood at -2pc, meaning that if GDP is flat in the final three months of the year, the economy will have shrunk by 2pc over the year as a whole.
Spain, which has kept the euro zone on tenterhooks over a decision on whether or not to seek help from the euro zone rescue fund, is also in recession. It contracted 0.3pc in the third quarter.
The Dutch economy shrank much more sharply than expected, by 1.1pc on a quarterly basis, the biggest drop in the quarter of any euro zone country. Austria's economy contracted 0.1pc. Cyprus shrank 0.5pc.
Figures earlier this week showed the Portuguese economy shrank 0.8pc quarter-on-quarter while Greece tumbled further, casting doubt on whether Athens and its lenders can come up with a credible plan to put its finances back on track.
EU policy makers seem aware that government spending cuts cannot keep up at the current pace, particularly after shocking suicides in Spain by people who had their homes repossessed.
Spain's Economy Minister Luis De Guindos has repeatedly called for EU-mandated budget cuts to take into account the euro zone's recession, while Greece has been given two more years to make the cuts demanded of it.
"The last couple of days have created a new momentum for a change in policy, because up until this week, social tension was not part of the equation," said Saxobank chief economist Steen Jakobsen. "It seems like the tone has shifted dramatically."