Mercedes cars at a shipping terminal in the harbor of the German northern town of Bremerhaven, 8 March 2012. Germany's economy crept back into growth at the start of 2013 but not by enough to stop the euro zone from contracting for a sixth straight quarter, and France slid into recession. Photo: Fabian Bimmer / REUTERS

By Robin Emmott, Sarah Marsh, and Mike Peacock, with additional reporting by Gavin Jones in Berlin and Ingrid Melander in Paris; Editing by Jeremy Gaunt
15 May 2013

BRUSSELS/BERLIN (Reuters) – Germany's economy crept back into growth at the start of the year but not by enough to stop the euro zone from contracting for a sixth straight quarter, and France slid into recession.

Falling output across the bloc meant the 17-nation economy is in its longest recession since records began in 1995.

It shrank 0.2 percent in the January to March period, the EU's statistics office Eurostat said on Wednesday, worse than the 0.1 percent contraction forecast by a Reuters poll.

"The misery continues," said Carsten Brzeski, a senior economist at ING in Brussels. "Almost all core countries bar Germany are in recession and so far nothing has helped in stopping this downward spiral.

As well as France, the economy shrank for the quarter in Finland, Cyprus, Italy, The Netherlands, Portugal, and Greece. Data last month showed Spain's economy contracted for a seventh consecutive quarter.

Germany, which generates almost a third of the euro zone's economy, grew by a weaker than expected 0.1 percent, skirting the recession that France succumbed to, but highlighting the devastating impact of the euro zone's debt and banking crisis that has driven unemployment to a record 19 million people.

France's downturn was its first in four years, after contracting by 0.2 percent in the first three months of the year, as it did in the last quarter of 2012.

Italy, the euro zone's third largest economy, reported its seventh consecutive quarter of decline, the longest since records began in 1970.

The euro zone's recession is now longer than the five quarters of contraction that followed the global financial crisis in 2008/2009, although it is not as deep.

The euro fell to a six-week low against a buoyant dollar, hurt by the anemic figures which kept alive chances of more monetary easing by the European Central Bank.

The ECB cut rates to a record low earlier this month and its head, Mario Draghi, said it was ready to act again if the economy worsened.

Some EU leaders, who meet for a summit in Brussels next week/ are also trying to shift away from the budget cuts that have dominated the response to the debt crisis since 2009.

But it will be tough for another rate cut and a softening of austerity - even if either happens - to break a cycle in which governments are cutting spending, companies are laying off staff, Europeans are buying less and young people have little hope of finding a job.

"Any recovery is going to be excruciatingly slow," said Nick Kounis, head of macroeconomic research at ABN AMRO. [more]

Germany can't stop euro zone from sinking into longest recession

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