Eurozone economy shrinks for first time since 2009

The eurozone economy contracted in late 2011 for the first time since the depth of the global recession as the struggle to save the single currency took its toll on growth across the 17-nation region.

With even Europe‘s powerhouse of Germany suffering a decline in output, figures from Brussels showed that gross domestic product in the euro area declined by 0.3% in the final three months of last year.

The fall was slightly smaller than the financial markets had been expecting but analysts warned that there was still a strong risk of a further drop in activity in the first quarter of 2012 – thereby fulfilling the technical definition of a recession.

With the United States, China and Britain all concerned about the impact of a deepening euro crisis on their economies, Europe will be top of the agenda when finance ministers and central bank governors from the G20 group of developed and emerging nations meet in Mexico City later this month. The International Monetary Fund believes that even on the assumption that the single currency holds together, the eurozone will contract by 0.5% in 2012 before returning to modest growth in 2013.

Consumer confidence collapsed in the eurozone in the second half of 2011 amid fears that contagion effects from Greece would threaten the future of the single currency. Credit conditions have tightened, although recent business surveys have provided some hope that activity has started to bottom out.

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