Euro-area economy contracted in second quarter on Spain

Aug. 14 (Bloomberg) -- The euro-area economy shrank in the second quarter after the worsening debt crisis and tougher budget cuts forced at least six nations into recessions.

Gross domestic product in the 17-nation currency bloc fell 0.2 percent from the first quarter, when it stagnated, the European Union’s statistics office in Luxembourg said today. That’s in line with the median estimate of 35 economists in a Bloomberg survey. The contraction was softened by stronger-than- forecast growth in Germany, the region’s largest economy.

Europe’s slump is deepening as governments struggle to restore investor confidence and companies eliminate jobs. While Germany’s economy helped to support the euro region in the first half, surveys are weakening, with a gauge of investor confidence dropping in August. The Bank of Japan today cited the euro turmoil among risks to its economy.

“The ongoing recession in large parts of the periphery will continue to hold back Eurozone growth,” said Martin Van Vliet, an economist at ING Bank in Amsterdam. “Any recovery will likely remain sluggish and fragile. There are a lot of things that could go wrong on the crisis resolution that could derail the envisaged recovery.”

Stocks Rise

The euro advanced 0.1 percent against the dollar and traded at $1.2345 as of 3:20 p.m. in London.

Stocks rose after data showed Germany’s economy grew 0.3 percent in the second quarter and U.S. retail sales increased more than forecast in July. The Stoxx Europe 600 Index gained 0.4 percent, while Germany’s DAX Index jumped 0.7 percent. The Standard & Poor’s 500 Index added 0.2 percent.

The second-quarter expansion in Germany compared with economists’ forecast for growth of 0.2 percent. While France’s economy stalled for a third straight quarter, that was also better than the 0.1 percent contraction economists had predicted.

Italy’s economy contracted for a fourth straight quarter, shrinking 0.7 percent. In Spain, which received external aid earlier this year, GDP dropped 0.4 percent from the first quarter, when it fell 0.3 percent. Portugal’s economy contracted 1.2 percent in that period and Cyprus also remained in a recession.

The statistics office didn’t release quarterly data for Ireland and Malta. Both economies contracted in the first quarter. Greece’s GDP is set to drop for a fifth straight year.

From a year earlier, overall euro-area GDP dropped 0.4 percent in the second quarter.

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