Eurozone GDP in the fourth quarter contracted faster than expected and for the full year 2012, the Eurozone saw four quarters of contraction as nations launched austerity measures to help clean up finances. Stocks in Europe were lower and the euro slid on the news.
Eurozone GDP contracted 0.6 percent in the fourth quarter, worse than the 0.1 percent rate of contraction seen in the third quarter and below forecasts of a 0.4 percent contraction. Weakness across the continent was seen in domestic GDP reports, and stock markets and the euro fell.
Breaking down the report, weakness was seen in Germany, France and Italy. German fourth quarter GDP contracted 0.6 percent from the third quarter, well below forecasts of a 0.5 percent contraction and below the previous reading of 0.2 percent growth. Also, French quarterly GDP contracted 0.3 percent on expectations of a 0.2 percent contraction. Italian GDP was also weak, contracting 0.9 percent on expectations of a 0.6 percent contraction.
The weakness in Germany is being blamed on weak exports and business investment in plants and machinery. Despite business surveys and sentiment readings showing slight optimism on the European economy, the data underscores how a strong euro can derail an export-led recovery.
The data should raise pressures on the ECB to ease policy further. Economists have already been calling on the bank to ease policy either through some sort of liquidity program or rate cuts to boost the economy and now also to weaken the euro. The weak GDP data Thursday only furthers this argument.
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European shares traded lower on the weak GDP data led by Spanish, German, and Italian shares. The Spanish Ibex Index declined 1.5 percent and the Italian FTSE MIB Index fell 1.14 percent while the German DAX slid 1.27 percent. All of the three indexes traded at session lows as of writing. Also, French and U.K. shares were lower as well.
The euro plunged on thew news with the EUR/USD declining nearly one percent. The EUR/USD fell 131 pips to 1.3321 in early trade as the euro weakened broadly and the dollar gained. The euro fell 0.76 percent against the pound as well and 1.27 percent against the yen.
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