France fell back into recession and Germany's economy barely grew in the first quarter of 2013, as the euro zone extended what is now its longest recession.
Paltry 0.1 percent growth in the German economy, Europe’s economic backbone, failed to offset France’s 0.2 percent and Italy’s 0.5 percent contractions in the first three months of this year. Overall, gross domestic product (GDP) in the euro zone fell 0.2 percent, according to a report on Wednesday from the European Union’s statistics office Eurostat.
The new data mark the sixth consecutive quarterly decline in the monetary union, as France entered its first recession in four years and Italy shrank for the seventh-straight quarter. Germany’s economy fell 0.3 percent compared with the same quarter last year.
German exports and investments fell in the first quarter as French exports declined, too, for the second quarter in a row.
The new numbers dash hopes of a faster recovery as European policymakers struggle to slash growing unemployment numbers and debate the merits of austerity.
"We still think that the consensus forecast of a 0.4 percent fall in euro zone GDP this year is too optimistic and expect something closer to -2 percent," Ben May, an economist at Capital Economics, wrote in a memo on Wednesday.
And the dip bodes ill for Europe’s leaders.
French President Francois Hollande’s popularity has steeply declined in opinion polls as unemployment rose since late last year.
Italy’s new Prime Minister Enrico Letta was swept into office on a confidence vote after vowing to drive growth. Now, the country seems slated to fall short of analysts’ once-optimistic forecast of full-year contraction by only 1.3 percent.
And German Chancellor Angela Merkel, on the stump for re-election in September, seems less willing to contribute more money to prop up ailing economies in the monetary union. Voters polled in Germany have consistently opposed further bailouts.
The news comes a day after the ratings agency Fitch upgraded Greece’s credit to B- from CCC, speculating that spending cuts and restructuring in one of Europe’s most problematic economies was rebalancing the country.
To avoid another downgrade, Fitch said in its report, Greece and neighboring Cyprus, in similar economic straits, would have to rely on the stability of the shared currency and in the pan-European institutions financing both countries’ bailouts.