Euro economy shrinks a 6th quarter, a record

Employees of Kem One burned tires Tuesday as they protested possible job cuts in front of the company’s factory in Pierre-Benite, France.
Employees of Kem One burned tires Tuesday as they protested possible job cuts in front of the company’s factory in Pierre-Benite, France.

PARIS — The eurozone economy shrank for a record sixth consecutive quarter in the first three months of the year, according to data released Wednesday. But when European heads of state meet next week in Brussels, don’t look for any big announcements about plans to stimulate growth.

Europe, experts say, seems to be in policy paralysis. With Germany, the Continent’s economic heavyweight, in the grip of preelection politicking, no big European policy moves are likely until after that country’s elections in September. Even then, it is not clear that anyone has any masterstrokes planned.

The political situation “is not conducive to making bazooka decisions,” said Gilles Moëc, an economist at Deutsche Bank in London, referring to an allusion by Henry M. Paulson Jr., a former US Treasury secretary, to the need to have economic firepower in a crisis.


Germany was able to just barely sidestep a recession in the first quarter, but France slid into one, according to data from Eurostat, the European Union’s statistical agency. France’s president, François Hollande, marked the occasion at a news conference in Brussels by indicating his country should not be singled out for criticism.

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“Are we an isolated case?” he asked. “No, because the recession in Europe and particularly in the eurozone is greater.”

But he offered no prescription for growth other than to say, “If Europe, member states, and France organize ourselves to promote growth, then we can return to the hope of a better future.”

Organizing to promote growth, though, seems to be the mission that has long eluded the union, whose listlessness contrasts with the performance of other major economies.

Two weeks ago, the European Central Bank cut its benchmark interest rate target to a record low in a largely symbolic move, but gave no hint of whether it had more in store. Economists say there is a limit to what monetary policy can accomplish, in any case.


And the people perhaps most able to propose action — EU finance ministers — just spent two days in Brussels arguing over tax havens and debating a banking union, which is aimed at avoiding future disasters, not reviving growth.

“We don’t see policy makers lifting a finger anywhere in Europe,” said Carl Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y. “But this is a depression, rather than a cyclical downturn, and there must be a policy response if things are going to get better.”

The 17-nation eurozone economy contracted 0.2 percent in the first quarter from the last three months of 2012 — less than the 0.6 percent decline recorded in the fourth quarter. Economists expected a 0.1 percent fall.

Germany essentially marked time, growing 0.1 percent. The economy of the overall union, 27 nations, shrank 0.1 percent. It was the first time the eurozone had contracted for six straight quarters since creation of the single currency in 1999.

In annualized terms, the eurozone­ economy contracted 0.8 percent in the first quarter, in stark contrast to the current 2.5 percent annual growth rate in the world’s largest economy, the United States. China, with the second-biggest economy, reported in April first-quarter growth of 7.7 percent.


Japan, with the third-largest economy, is expected to post annualized growth of about 2.8 percent when it reports its first-quarter numbers Thursday.

Despite its troubles, the European Union remains the single largest market, which means its weakness is retarding growth in the rest of the world.

Philippe d’Arvisenet, head of research at BNP Paribas, estimated the eurozone economy will shrink 0.5 percent this year. Growth will probably return in 2014, he said, “but probably below 1.0 percent.”