The eurozone is being described as the weakest link in the global economy, with the 17-member currency bloc facing up to another year of contraction. While economists believe growth in the world's two leading economies - the United States and China - will steadily gain momentum later in the year, they now expect eurozone gross domestic product to shrink by 0.4 per cent during 2013.
This comes after the EU statistics office Eurostat estimated Wednesday that the currency bloc had slumped by a bigger-than-forecast 0.2 per cent in the first quarter, following unexpectedly disappointing performances by the region's two biggest economies - Germany and France.
"Today's gross domestic product figures once again show that the eurozone remains the weakest link in the world economy," said ING bank economist Peter Vanden Houte, adding however that "a subdued recovery in the second half of the year is still possible." The latest eurozone GDP data follows a string of downbeat economic sentiment surveys, which have added to concerns about the currency bloc's economic outlook.
Unemployment climbed to a record 12.1 per cent in March as recession and rigorous fiscal austerity resulted in another 62,000 people joining the jobless ranks in the eurozone. "More than a marginal plus in the economic growth in the coming quarters is not to be expected," said Commerzbank economist Christoph Weil. "It will continue to feel like a recession. Unemployment in the euro area will rise to new record levels," Weil said.
The grim prospects facing the eurozone raises the prospects of the European Central Bank (ECB) being forced to consider additional action to help nudge the currency bloc back onto the path of economic growth. Earlier this month, the ECB cut interest rates to an historic low of 0.5 per cent.
Still, some positive signs have emerged, with the ECB moves to boost liquidity in the eurozone's financial system having helped to stabilise the region's economy. And Wednesday's GDP data showed the recession in the eurozone easing somewhat. The region's economy contracted by a hefty 0.6 per cent in the final three months of 2012. Germany's weak first-quarter growth figure followed prolonged winter weather, the nation's statistics office said as it released national data earlier in the day.
But a slew of data - including factory orders and production data - point to Europe's biggest economy picking up speed. On Tuesday, Eurostat published data showing industrial production in the eurozone rising for the second-consecutive month in March, climbing by a more-than-forecast 1 per cent. Many economists are cautiously optimistic that stronger growth in the US and China later in the year should help support both the German and eurozone export machines.
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