Europe’s Recession Deepens

Europe’s recession deepened more than estimated in the fourth quarter after companies scaled back production and consumer spending declined., Bloomberg 4/7/2009 5:31:40 AM

Gross domestic product in the euro region fell 1.6 percent from the previous three months, the most in at least 13 years, the European Union’s statistics office in Luxembourg said today, revising a March 5 estimate of a 1.5 percent contraction. Investment plunged 4 percent, also more than estimated, and household spending slipped 0.3 percent.

The financial crisis is forcing companies from carmaker Volkswagen AG to software maker SAP AG to reduce output and cut jobs. The economy, which grew 0.8 percent in 2008, may shrink 4.1 percent this year, the Organization for Economic Cooperation and Development has forecast. The European Central Bank is examining possible new non-standard measures to stimulate the economy after cutting interest rates to a record low.

Consumer spending fell 0.3 percent in the fourth quarter, less than the 0.9 percent estimate published last month, today’s report showed. Still, retail sales fell by a record 4 percent in February, according to data published yesterday.

Euro-area exports fell 6.7 percent in the fourth quarter from the previous three months and imports dropped 4.7 percent, according to today’s report. From a year earlier, overall GDP shrank 1.5 percent in the fourth quarter, the only full-year drop on record.

The ECB last week cut interest rates by 25 basis points to 1.25 percent, taking its reductions since early October to 300 basis points. Still, it’s lagging counterparts such as the U.S. Federal Reserve and the Bank of England, which have cut their key rates to almost zero and are pumping money into their economies by buying government and company securities.

The ECB is studying what else it can do to revive lending and economic growth, council members Guy Quaden and Michael Bonello told Bloomberg News in Prague after a meeting of finance ministers and central bankers on April 3 and April 4.

While the rate of contraction in European manufacturing and services industries may be easing, European leaders face increasing pressure as unemployment continues to increase, crushing consumer confidence.

The euro area jobless rate jumped to 8.5 percent in February, the highest in almost three years. Consumer sentiment fell to a record low last month, according to the European Commission.

Europe’s Recession Deepens