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Britain flirts with recession, Greece with a messy default Add to ...

These are stories Report on Business is following Wednesday, Jan. 25, 2012. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.

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Europe outlook dims Britain is flirting with recession and Greece with bankruptcy as Europe's outlook darkens.

Britain's economy contracted by 0.2 per cent in the fourth quarter of last year, leaving one more quarter to go before a technical recession is declared. The numbers from the Office of National Statistics today were slightly worse than expected.

"A drop of 0.2 per cent in GDP is not exactly dire, but with sentiment still so uncertain it provided an unfortunate surprise," said Chris Beauchamp, market analyst at IG Index in London. "Manufacturing activity fell by 1.2 per cent, while the services sector saw neither growth nor contraction."

The entire euro zone is believed headed toward a recession, as well.

In Greece - and this is no surprise - there's still no deal with private creditors over the hit they'll take in a debt restructuring. Athens faces a big payment in March, and there are mounting fears that it's headed toward a messy default. Officials said today they believe they could strike an agreement this week, but I wouldn't count on that.

"There also appears to have been a change in tone from EU leaders with respect to the likelihood of a Greek default and their acceptance of just such an outcome, as they try to increase the pressure on the key players in the [private sector involvement]game of chess," said Michael Hewson of CMC Markets.

The one bright spot today is Germany, where a widely watched survey showed business confidence rising to its highest in five months.

Markets sink Investors are in a sour mood this morning given the troubles in Europe.

Tokyo's Nikkei climbed 1.1 per cent, but stocks in Europe are sinking and New York is headed toward a weaker opening, except on the Nasdaq, which is being buoyed by the stellar quarterly results from Apple Inc. late yesterday.

Markets are also awaiting this afternoon's announcement by the Federal Reserve.

London's FTSE 100, Germany's DAX and the Paris CAC 40 were down by between 0.4 per cent and 0.6 per cent by about 9 a.m. ET.

Dow Jones industrial average and S&P 500 futures slipped.

"Despite blowout earnings from Apple (sending its shares 8 per cent higher after hours) and an improvement in German business confidence, U.S. stock index futures are steady on news that Britain’s economy contracted in the fourth quarter," said Sal Guatieri of BMO Nesbitt Burns. "Treasuries are firm ahead of the Fed’s policy announcement."

Labour market shifts Employment quality in Canada deteriorated last year as more people moved into self-employment and the composition of the labour market tilted towards lower-paying positions, according to a new report from Canadian Imperial Bank of Commerce.

Canada's labour market was lopsided last year, with virtually all of the country's job growth in the first half of the year. The pace slowed considerably in the last six months, and the quality of work worsened, CIBC said in its employment quality index, The Globe and Mail's Tavia Grant reports.

Japan posts trade deficit Hit by natural disasters and a strong currency, Japan's trade might is running out of steam.

Japan today reported a trade deficit, its first since 1980, of ¥2.5-trillion, or $32-billion (U.S.), hurt by the March earthquake, tsunami and subsequent nuclear crisis, as well as the mighty yen.

"But getting bearish ... on the back of a trade deficit is too simplistic," noted currency strategist Elsa Lignos of RBC in London. "It is the current account balance which matters, which is still in surplus and would need much larger trade deficits to turn."

As The Globe and Mail's Greg Keenan writes in today's Report on Business, almost everything that could go wrong for Japan last year did just that.

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