With a Contraction of 0.2% in Second Quarter, Euro Zone is on the Edge of a Recession

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Euro zone economic growth contracted 0.2% from the first quarter, 0.4% year-over-year (YoY) in the second quarter of this year, according to Eurostat, the European Union's statistical agency. Germany posted modest economic growth in the second quarter of the year, and France stagnated, suggesting the Euro zone as a whole contracted over the three months.

The German economic growth slowed in the second quarter, dropping to 0.3%. The decrease is triggering worries about a slowdown for Europe's biggest economy. France remained stagnant for the third consecutive quarter. Italy and Spain, the Euro zone's third- and fourth-largest economies, shrank by 0.7% and 0.4%, respectively, in the second quarter. Both countries are trying to convince market participants about their strategies and structural reforms. Last month, Spain asked for a bailout package of 100 billion euro's for its banks.

In the 17 members of the Euro zone, only three besides Germany escaped recession: Austria, Finland and the Netherlands. A recession is officially defined as two straight quarters of falling output.

Greece's economy contracted a record of 6.2% in the second quarter. With this growth rate, the Greek economy is back at the level where it was in 2005. "It's especially difficult for the southern states if they are trying to restructure and be more austere in an environment where you've got quite a slowing global economy," said Gareth Isaac, a senior portfolio manager at Schroders in London. Greek Prime Minister Antonis Samaras will meet Germany's Chancellor Angela Merkel next week, and he may seek an extension of his austerity plans.

The European Union, which has a population of 500 million people, recorded a gross domestic product (GDP) last year of $15.5 trillion. This amount was more than the U.S.'s output of $15.1 trillion.

Europe's debt-ridden countries have been blamed for the sharp deterioration in the global economic environment over the last few months. The region is the U.S.'s largest export customer, and any fall-off in demand will hit this country's weak economic performance.

"Even if the Euro zone manages to survive in its current form, the ongoing austerity and high credit spreads suggest the growth outlook is bleak," said Andrew Kenningham, a senior economist from Capital Economics, which is based in London. "It looks as if global GDP growth slipped below 3% on an annualized basis in the second quarter of this year, its lowest level since early 2009. We expect no improvement in the second half of the year."

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