Technically, the euro zone is now in recession.
Practically, it hardly matters.
For months now, the debt crisis and resulting economic slump has been spreading pain and uncertainty across Europe, and far beyond.
Gross domestic product in the 17-member euro zone shrank 0.1 per cent in the third quarter, according to figures released Thursday by EuroStat. Combined with a 0.2 per cent contraction in the second quarter, the slump meets the traditional definition of a recession – two consecutive quarters of negative GDP.
Strip out Germany – the manufacturing and exporting engine of Europe – and the results are even worse. The euro zone would be in its fifth quarter of contraction without Germany.
Germany and France are the only countries to report GDP growth in the three months ended in September – 0.2 per cent in both cases. But growth is stalling there too as their exports to the rest of Europe take a hit.
“In contrast to the so-called peripheral European economies, the outcomes aren’t that bad,” Scotiabank economists Derek Holt and Dov Zigler said in a research note.
Economic output in the euro zone is now 2.4 per cent lower than the peak it reached just before the last recession in 2008.
And there isn’t much good news ahead. National Bank of Canada economist Krishen Rangasamy said “odds are” the recession will stretch into the current quarter as well.
“The periphery economies continue to struggle as austerity bites into growth,” Mr. Rangasamy said in a research note. “Worse is the trend line . . . which makes it even harder for those economies to meet deficit targets and reduce debt.”
Economists warned that the third quarter figures could eventually be revised lower.
Confirmation that Europe is now in a recession comes as anti-austerity protests continue in cities across southern Europe. The protests highlight the pain that is already being felt in the region’s weakest economies, particularly in Greece, Spain and Portugal, where budget cuts and rising unemployment have been taking a toll for months.
This week’s selloff in Canadian and U.S. stocks is also a measure of how worried investors are about the spillover effects of the European recession on the global economy.