Europe’s Economy Contracts 2.5%

Europe’s economy contracted at the fastest pace in at least 13 years in the first quarter as companies cut output and jobs to survive the worst global slump in more than six decades., Bloomberg 5/15/2009 8:54:18 AM

Gross domestic product in the 16-member euro region fell 2.5 percent from the fourth quarter, the biggest decline since the data were first compiled in 1995, the European Union’s statistics office in Luxembourg said today.

The deepest global recession since World War II is curbing European exports and eroding consumer demand, forcing companies to cut spending and jobs. The German and Italian economies also contracted by the most on record.

From a year earlier, the euro-area economy shrank 4.6 percent, also the biggest decline on record, today’s report showed. The statistics office is scheduled to publish a breakdown of first-quarter GDP on June 3.

In Germany, Europe’s largest economy, GDP dropped 3.8 percent in the first quarter from the previous three months. That’s the biggest drop since data were first compiled in 1970. Italian GDP fell 2.4 percent, the most since records began in 1980, and the French economy shrank 1.2 percent in that period. The economies of the Netherlands and Austria also contracted.

The slump in western Europe is hurting its neighbors to the east by cutting demand for their exports and crippling foreign investment in the former communist states. Five eastern members of the EU reported first-quarter contractions today, with Hungary and Romania showing annual GDP declines of 6.4 percent.

As the global slump curbs orders and rising unemployment undermines consumer spending, companies are being forced to hold the line on prices. Euro-area inflation held at a record-low 0.6 percent in April, separate data showed today. That is less than half the European Central Bank’s aim of just below 2 percent, and an EU gauge of price expectations turned negative last month for the first time since 1990.

While declining prices leave consumers with more money to spend, companies may not be able to count on household demand to bolster earnings this year. The commission earlier this month forecast unemployment will jump to 11.5 percent next year with the highest rates expected in Spain and Ireland. The region’s jobless rate is currently at 8.9 percent, a three-year high.

Europe’s Economy Contracts 2.5%