Europe’s estimated GDP to decline 2.5 per cent in 1Q - Eurostat

Europe's first quarter GDP data that has started rolling out shows that most European economies are likely to fair badly with a much lower GDP than forecast, indicating that the severe economic downturn in Europe will continue.

According to the flash estimates published by Eurostat, the statistical office of the European Communities, Europe's GDP is estimated to decline by 2.5 per cent in the first quarter of 2009 in both the euro economies comprising the 16 European economies (EA16*) and the wider 27-country European Union (EU27**), compared with the previous quarter.

In the fourth quarter of 2008, growth rates declined by 1.6 per cent in the euro area (EA16) and fell 1.5 per cent in the EU27. 

Compared with the same quarter of the previous year, seasonally adjusted GDP decreased by 4.6 per cent in the euro area and by 4.4 per cent in the EU27 in the first quarter of 2009,  after a decline of 1.4 per cent in both zones in the previous quarter. 

The first quarter decline has stumped analysts who were expecting moderately better results than in the last quarter of 2008. GDP, which measures the value of all goods and services produced in a country, sets back European recovery, indicating that the economic downturn is likely to continue.

Eurostat's measuring indicator as per the percentage change compared with the previous quarter shows that while the US shrank 1.6 per cent and UK by 1.9 per cent compared to 2.5 per cent in Europe, the quantum of the effect was higher in the European countries.

Of the 16 European countries the recession has taken it worst toll on Latvia and Slovakia, with the percentage change in the GDP from the previous quarter being 11.2 per cent followed by Lithuania contracting by 9.5 per cent.

The IMF has forecast the euro zone GDP to decline 4.2 per cent in 2009.

Germany:
The German economy has recorded its biggest contraction since 1990 in the first quarter of 2009. GDP fell 3.8 per cent from the previous quarter. (See: German economy records biggest contraction since 1990 in Q1)

Germany, Europe's largest economy is heavily dependent on its exports, which declined at a faster rate than its imports. The fall in the GDP was far steeper than the drop of 3.2 per cent economists had forecast. 

The German government's forecast of a full year 6-per cent contraction, against its earlier estimate of 2.25 per cent three months ago, (See: German economy to contract 6 per cent in 2009) also makes it the worst since World War II.

France:
The French economy shrank 1.2 per cent in the first quarter, the National Institute for Statistics and Economic Studies said. This was however lower than the 1.5 per cent fall in the previous quarter. France is far less dependent on exports and the steady domestic demand helped it to perform better than other European countries.

The last time France went into recession was in 1993.The French economic minister Christine Lagarde said in a statement that the economy is expected to contract by 3 per cent in 2009, though it was faring significantly better than its neighbours.

Eurozone industrial production recorded its biggest ever fall in February, sinking 18.4 per cent on year-on-year basis, as reported by the European Union (EU) statistics agency. Compared to January, the production dropped 2.3 per cent, making it the sixth month of decline in a row, underlining the severity of the global recession. (See: Eurozone industrial output slumps record low)  

Europe's severe economic downturn is expected to continue till at least the second half of 2010 and could persist longer if governments fail to take additional measures to shore up fragile financial institutions and coordinate their response to the recession, says  the International Monetary Fund. (See: IMF projections point to worsening Euro economies till mid 2010) 

In the euro zone, industrial output is important, as a number of economies are heavily dependent on one another. With fall in exports, production falls leading to job losses - a vicious circle. 

The European GDP data is no different for other countries, as well. The US gross domestic product shrank by 6.1 per cent in the first quarter, although Wall Street and economists expected the economy to contract by only 4.7 per cent. IMF forecast for GDP to shrink 2.8 per cent in 2009. (See: US GDP shrinks by 6.1 per cent in FQ)

UK
UK, though not a part of the euro, recorded its biggest quarterly GDP decline since the third quarter of 1979. Gross domestic product (GDP) slumped 1.9 per cent in the first quarter of 2009 and the IMF has forecast its GDP to shrink 4.1 per cent in 2009.(See: Britain's GDP shrinks 1.9 per cent in first quarter)

China
China's industrial output grew 7.3 per cent in April from a year earlier, lower than the 8.3 per cent in March, indicating the slowdown in exports to continue. (See: China's April industrial output grows at 7.3 per cent, lower than March's 8.3 per cent)

The World Bank has forecast that China's economy will grow by just 6.5 per cent in 2009, down from the 13 per cent in 2007 and 9 per cent in 2008. (See: Chinese revival may start this year: World Bank) 

Japan
The Japanese government expects the country's economy to shrink by 3.3 per cent during the current fiscal year, confirming that the world's second-largest economy is heading for its worst contraction since World War II. (See: Japan unveils supplementary budget of ¥15.4 trillion)   The IMF has projected Japan's economy to shrink 6.2 per cent in 2009, down 0.4 percentage points from its previous mid-March forecast, but expects it to start picking up in the second half of this financial year. (See: Japan's deficit at precarious level: IMF ) 

The IMF, in its regional economic outlook published for Middle East, North Africa, Afghanistan and Pakistan, covering 22 countries, has forecast a lower GDP growth of 2.6 per cent for the region in 2009, compared to 5.7 per cent in 2008. (See: IMF predicts 2.6 per cent GDP growth for Middle East, North Africa)

According to the IMF, global GDP is expected to contract 1.9 per cent in 2009.