Staid growth in eurozone dampens recovery hopes

Hopes of economic recovery for the eurozone have been tempered as it slipped back to the brink of contraction at the end of last year, according to official data out today. Wary companies in Germany, traditionally an economic powerhouse, cut back and saw investment grind to a halt. A previous estimate of GDP for the 16 countries using the euro had shown growth of 0.1% in the fourth quarter of 2009, but that was revised down to flat. The region's economy had emerged from recession in the third quarter with growth of 0.4%, but a fall in output from Italy and no growth in Germany helped snuff out expansion in the final three months of the year. The downward revision came as a surprise to many in financial markets, where economists had forecast on average an unchanged reading of 0.1% growth. Compared with a year earlier, the economy contracted 2.2%, a slight deterioration from the 2.1% previously reported and as forecast by economists. The data from the EU statistics office Eurostat showed that investment – fixed capital formation – shrank 0.3%, sharper than previously reported, chiming with business surveys that show a reluctance among companies to put up new cash for long-term projects. Economists also pointed to the drag, highlighted by new data, from countries that have been slower to emerge from the global recession, as well as the effect of German GDP coming in at zero growth from 0.7% the previous quarter. While the UK's economy grew 0.4% in the fourth quarter, in the eurozone there was pressure from Ireland's economy shrinking 2.3%, while Italy's fell 0.3%. "It's a bit of a disappointment," Juergen Michels, economist at Citigroup, told Reuters. "It's mainly due to a downward revision in the fixed capital formation bit and this downward revision, overall, probably takes into account that we got more data for Ireland and other places that were pretty weak," he said. There was some support for the region's economy to keep it out of contraction from exports and inventory growth. But the latter factor was not necessarily one to welcome, cautioned experts. Howard Archer, economist at IHS Global Insight, said: "Inventories added a 0.1 percentage point to GDP, thereby dashing hopes that the slowdown in GDP growth had been at least partly the result of a further running down of stocks, which would at least help growth going forward."