France returns to recession as Euro zone economy shrinks

The euro zone economy shrank more than expected in the first three months of 2013, official data showed Wednesday, in its sixth consecutive quarter of decline as France returned to recession for the first time since 2009 and Germany marked time.

The 17-nation euro zone contracted by 0.2 per cent from the last three months of 2012, Eurostat, the statistical agency of the EU, reported from Luxembourg, less than the 0.6 per cent decline recorded in the fourth quarter, which was more than  economists' expectations of a 0.1 per cent fall.

The overall EU, made up of 27 nations, saw its economy shrink by 0.1 per cent.

Germany, with the largest economy in Europe, remained almost stagnant in the first quarter, managing growth of just 0.1 per cent as against the prior three months, when it shrank by 0.7 per cent, the Federal Statistics Office reported in Wiesbaden.

The second-largest economy in Europe, France contracted for a second consecutive quarter, meeting the common definition of a recession. The economy contracted by 0.2 per cent, the same decline as in the fourth quarter of 2012.

Meanwhile, the UK, the third largest EU economy, but not a member of the euro, last month posted 0.3 per cent first-quarter growth.

According to analysts, the weaker-than-forecast GDP results in Europe's two biggest economies underscored the risks to the outlook and indicated that the 17-nation euro region was almost still stuck in recession.

The ECB cut its benchmark interest rate to a record low of 0.5 per cent this month and according to president Mario Draghi, the bank was ready to act again if needed.

The euro fell over a quarter of a cent after the German report and traded at $1.2908 at 10:29 am in Frankfurt. The benchmark DAX share index was up to 8344.19, while the CAC 40 declined to 3964.24. The yield on German 10-year bonds did not change at 1.37 per cent.

According to the statistics office, Germany's first-quarter growth was driven ''almost exclusively'' by household spending. It added, investment declined as net trade barely contributed. A detailed breakdown was due on 24 May. From a year earlier, the economy shrank 0.2 per cent on after adjustment for working days.

According to Holger Sandte, chief European analyst at Nordea Markets in Copenhagen, the fact that investment, exports and imports declined was not nice and signaled weak domestic demand.