Eurozone sinks into recession for first time

BRUSSELS (AFP) - The 15-nation eurozone fell into recession for the first time ever, EU data showed on Friday, with Europe's economic powerhouse Germany among the hardest hit.

Gross domestic product in the economies using the eurozone fell by 0.2 percent in the third quarter after a similar drop in the second quarter, according to the Eurostat figures.

The announcement in Brussels was a heavy blow despite widely held expectations that the eurozone had fallen into recession for the first time since its formation in 1999.

"Not only did the third-quarter contraction in GDP confirm that the eurozone is now in recession, but latest data and survey evidence indicate that the fourth quarter is likely to see a sharper fall in GDP as the financial crisis bites harder," said Howard Archer chief European economist at Global Insight.

The 27-nation EU as a whole avoided the same fate. Its economy also suffered a 0.2 percent contraction in the third quarter but had recorded zero growth in the second, according to the official initial estimates.

Two consecutive quarters of falling gross domestic product (GDP) is the normal definition of recession.

Germany, Europe's largest economy, finds itself deep in the economic mire, with its economy contracting by 0.5 percent in the third quarter of 2008 after falling 0.4 percent previously.

Italy and other eurozone members joined Germany in the recession club.

France, the eurozone's second-biggest economy, defied predictions managing a 0.1 percent GDP increase in the July-September third quarter.

"The figure is astonishing because everyone was expecting a negative figure and preparing for a recession," said French Economy and Finance Minister Christine Lagarde, saying that Paris's policies were "beginning to have an impact."

The Spanish economy contracted for the first time since 1993 in the third quarter, shrinking 0.2 percent compared with the three months to June.

"We now have painful proof that there has been an excessive degree of complacency, which implies that the policy response in Europe is well behind the curve," opined Marco Annunziata, chief economist at the Unicredit group.

"The picture is gloomy: Germany and Italy contracted more sharply than expected, Spain capitulated as well, France narrowly avoided recession ... but its demise is only a matter of time."

Britain, outside the eurozone, suffered a 0.5-percent fall in economic growth in the third quarter, its first contraction since 1992.

The Bank of England said Wednesday the British economy was probably already in recession and faced a distant risk of deflation as the global financial crisis takes its toll.

It was not news for Denmark, a none-eurozone country which entered recession in the first quarter, or Ireland, which became the first eurozone nation in recession in the second quarter.

The effect of the recession on consumer and company spending was amply illustrated by other figures released on Friday showing new car sales in Europe down 14.5 percent in October over the same month last year.

Commission chief Jose Manuel Barroso said that the EU was ready to take action at the World Trade Organisation if it judges that US aid for its struggling auto industry is "illegal."

The US Congress approved an aid package worth 25 billion dollars in September to help the auto industry invest in new generation technology but no timetable was fixed for payments to be made.