The euro-zone economy contracted in the fourth quarter of 2011 as nine member states posted a fall—five of which entered a recession—increasing concerns the wider region will follow in the first three months of 2012.
Data from European statistical bureau Eurostat on Wednesday showed that gross domestic product across the 17 regions that share the euro contracted 0.3% in the final quarter of 2011 compared with the third, and grew 0.7% compared with a year earlier. That is the first quarterly contraction since a 0.2% drop in the second quarter of 2009, while the year-to-year gain is the smallest since the fourth quarter of 2009 when GDP shrank 2.1%.
Five euro-zone member economies are now confirmed as being in recession. Data from the Netherlands and Italy earlier Wednesday and Portugal and Greece Tuesday reported sharp quarterly contractions in the fourth quarter of 2011 and confirmed all regions are now in recession. And, the Eurostat release also reported that Belgium GDP fell 0.2% on the quarter in the fourth quarter of last year, following a 0.1% drop in the third quarter. The technical definition of recession is two consecutive quarters of contracting gross domestic product.
Germany was among the remaining four economies which posted contraction in the fourth quarter of last year, but that followed growth in the third quarter, and economists aren't expecting a recession in Germany this year.
The French economy expanded in the last quarter of 2011, countering expectations for a moderate contraction, and suggesting that the country was more resilient than expected to the effects of the sovereign-debt crisis.
Meanwhile the German economy, the largest in Europe, contracted in the fourth quarter of last year slightly less than expected, mainly as a result of higher fixed investment in construction, official data released Wednesday showed.
Gloomier news emerged from Italy, where data indicated the economy contracted sharply in the fourth quarter, shrinking 0.7% from the previous three months. As expected, Italy is now in a technical recession.
France's gross domestic product grew 0.2% on the quarter and 1.7% from a year earlier, Insee said. The statistics office said late last year that the French economy had slipped into a recession.
Despite signs that industrial output and consumer spending both contracted in December, Insee said an increase in production and investment over the last three months of the year boosted the economy in the fourth quarter.
"The figure backs our growth forecast for 2012," Finance Minister François Baroin said in a radio interview.
Last month, the French government cut its growth forecast for 2012 to 0.5%, from 1% previously. The lower growth has large implications on public finances: with the revised forecast the government had to factor in a shortfall of about €5 billion ($6.57 billion) in tax receipts.
French voters are closely watching the economy for hints of how to cast their ballots in the two-round presidential elections in April and May. Voters have watched unemployment rise steadily toward the 10% threshold, reaching levels last seen 11 years ago, and are punishing President Nicolas Sarkozy in the polls.
Mr. Sarkozy, who trails Socialist leader François Hollande by a wide margin, is facing increased scrutiny on his management of the economy since Standard & Poor's Ratings Services stripped France of its cherished triple-A rating last month. Tuesday, Moody's added to the bad news for the government, slapping a negative outlook on France's top credit note.
Mr. Sarkozy has announced a tax overhaul to make French production more competitive. The plan calls for cutting payroll taxes and raising the value-added tax, a measure sure to displease consumers.
Meanwhile, earnings reported Wednesday by some French companies confirmed that the sovereign-debt crisis hit France less than expected in the last part of 2011.
Write-downs on Greek debt and restructuring costs halved the net profit of BNP Paribas in the fourth quarter, but the bank, France's largest by market value, beat analyst forecasts for the period.
The German data confirms expectations that the country isn't heading into a recession this year.
"Of course, a quick rebound is not a certainty and the big unknown for the German economy remains the sovereign-debt crisis. One thing, however, is obvious: today's numbers are no reason at all to start singing swan songs on the German economy," said Carsten Brzeski, economist at ING Bank in Brussels.
Analysts and institutional investors expect economic conditions to improve in Germany over the next six months, the ZEW research center said Tuesday, after it said German economic expectations improved in February to a level last seen in April 2011, before the decision was made in May last year for Greek debt restructuring.
In their view, the likelihood that Europe's biggest economy contracts in the first quarter of 2012 is "very low," ZEW said.
Germany's gross domestic product fell 0.2% in the fourth quarter from the third quarter, according to price, seasonally and calendar-adjusted figures, but rose 2% from the corresponding period last year in price- and calendar-adjusted terms, data released Wednesday by the Federal Statistics Office, or Destatis, showed.
Fixed investment, in construction in particular, was the main driver of growth quarter-to-quarter, Destatis said. Domestic consumption, a driver of growth in previous quarters, declined slightly, as did net exports, the statistics office added.
The data do "not herald another negative quarter or even a deeper recession," said Alexander Koch, economist at UniCredit in Munich.
A recovery in the German labor market and also in consumer confidence bode well for a resumption of the upward trend while export expectations have rebounded considerably of late, Mr. Koch added.
Destatis raised its GDP estimates for the third quarter of 2011, to a 0.6% rise compared with the second quarter, from a 0.5% growth rate forecast earlier, and to a rise of 2.7% on an annual basis, from an increase of 2.6% forecast earlier.
In 2011, the German economy grew by a price- and calendar-adjusted 3.1%, compared with 3.6% growth in 2010. Under data unadjusted for calendar effects, real GDP growth was 3.0% in 2011, compared with a 3.7% increase in 2010. Germany's GDP expansion in 2010 was the strongest since the country's reunification. Destatis will provide a detailed breakdown of the data Feb. 24.
Italian third-quarter GDP declined 0.2% from the second quarter, Istat said, revising the figure down from a preliminary estimate of a 0.1% drop. Italy's economy grew 0.4% for the whole of 2011. Fourth-quarter GDP marked a 0.5% drop from the same period a year earlier.
All indicators signal that Italian GDP will shrink further in early 2012 as fiscal austerity crimps domestic demand and a slowing global economy reduces the opportunity for export-led growth.
The International Monetary Fund said last month it expected the euro-zone's third-largest economy to contract 2.2% this year. The government has forecast a drop of around 0.4% or 0.5%. Italy's sharp slide in late 2011 matches similarly weak performance from other peripheral euro-area countries.
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