Paris: Euro-area economic data due this week will probably show the damage inflicted by the region's sovereign debt crisis with the worst quarterly decline in output for almost four years.
Gross domestic product shrank 0.4 per cent in the fourth quarter, according to the median of 45 estimates. That would be the biggest decline since the first quarter of 2009, when GDP fell 2.8 per cent in the wake of the collapse of Lehman Brothers. The data is due to be published on February 14.
While measures to stem the region's debt turmoil have helped curb sovereign bond yields from Spain to Greece, at least seven countries of the 17-nation bloc are in recession, leaving 18.7 million people out of work.
The European Central Bank president Mario Draghi said last week that 'economic weakness' will prevail in early 2013 even as the economy shows confidence stabilising 'at low levels'.
The fourth quarter "is probably the trough of the cycle, Draghi is hopeful that it will be," said Marchel Alexandrovich, an economist at Jefferies International in London.
"We should see some improvement in economy in the first half of this year. The question is, whether it's strong enough" given the risks that lie ahead, he said.
The European Union's statistics agency, Eurostat, will publish the data on Thursday in Luxembourg. That will be the culmination of a series of GDP reports the same day from France, Germany, Austria, Slovakia, the Netherlands, Italy, Portugal and Greece.
Pace of decline
While the euro region's economy hasn't grown since the third quarter of 2011, the pace of decline in GDP, driven by a continent-wide push to narrow budget deficits and exacerbated by stalling exports, may be slowing now as demand picks up in the US and China.
"The fourth quarter was a double whammy for Europe, with austerity and exports to the US falling off," said Gilles Moec, co-chief European economist at Deutsche Bank in London. In the first quarter "there should be a gradual acceleration in external traction to help lift us out of that predicament."
The euro-area economy won't return to growth until the second quarter as a recovery in Italy is delayed and France continues to shrink, according to a monthly survey published on January 17.
Economists expect GDP to stay unchanged in the three months through March, before rising 0.1 per cent and 0.2 per cent in the second and third quarters, the survey showed. For the year, the economists predict a 0.1 per cent decline.
"The risks surrounding the economic outlook for the euro area continue to be on the downside," Draghi said at his monthly news conference on February 7, after the ECB kept its benchmark interest rate on hold at 0.75 per cent.
Germany, the euro region's biggest economy, and France, its next largest, are increasingly showing signs of diverging. German industrial production rose in December, adding to signs that the nation's recovery is gathering pace. Though GDP probably fell 0.5 per cent in the fourth quarter, it is expected to rebound with 0.1 per cent expansion in the first quarter of this year, surveys show.
"Between France and Germany, Germany may be decoupling," said Pierre-Olivier Beffy, chief economist at Exane BNP Paribas in London.
France is on the brink of falling back into its second recession in four years. French output probably shrank 0.2 percent in the fourth quarter, according to the median forecast of 28 economists in a survey. Economists in the monthly survey by Bloomberg predict a further decline in the first three months of 2013.
French President Francois Hollande is battling with jobless claims at a 15-year high as companies including Peugeot Citroen, Renault and Alcatel-Lucent cut tens of thousands of jobs. He's also struggling to slash the state budget deficit to 3 per cent of GDP this year from 4.5 per cent in 2012 — a target that the European Commission and the International Monetary Fund expect to be missed unless further action is taken.
"France is in quite a special position," Moec said. "The fiscal contraction there is now reaching its peak while most other countries hit it in 2011 and 2012. Plus the corporate sector was late in adjusting."
Spain and Italy, where GDP has probably declined for six straight quarters, are also the focus of concern about rising political risk. The Spanish government is facing corruption allegations, though Premier Mariano Rajoy denied receiving illegal cash payments. In Italy, the euro area's No. 3 economy, an election that is less than two weeks away may yield a hung parliament.