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Fear for euro’s big guns

France and Germany falter as stronger economies dragged into downturn

By Emma Rowley
Published: 13:25 August 9, 2012

Image Credit: EPA
A container ship in the port of Hamburg. The German economy ended the second quarter on a downbeat note, with data released on Wednesday showing both exports and output contracting in June as the euro debt crisis catches up with the country.

London: France is heading into recession, according to its central bank, adding to fears that the eurozone debt crisis is causing the region’s strongest economies to follow their troubled southern neighbours into an economic downturn.

The forecast came as official figures from Germany, the eurozone’s economic powerhouse, showed that its industrial production and exports both fell in June.

The data raised concerns that Germany, too, is succumbing to the crisis and will fall back into a recession. The Banque de France now expects that France’s gross domestic product will shrink 0.1 per cent in the three months to September. That would mark a recession, as it expects government figures on Tuesday to show the economy fell 01.per cent in the previous quarter also.  “The outlook for the coming months suggests a slight slowdown in economic activity,” the Bank said in its latest report. Its index tracking business confidence in France, the second-biggest eurozone economy, showed that sentiment weakened for a fourth month. In Germany, officials reported that industrial production dropped 0.9pc in June against the previous month, tempering a 1.7 per cent rise the month before.

Exports fell by 1.5 per cent, driven by falling sales to the other 16 countries that make up the eurozone, according to Germany’s national statistics office. Imports, which indicate the strength of domestic demand, fell by 2.9pc. Economists at BNP Paribas are predicting that German GDP will have been flat in the second quarter, a slowdown from the 0.5pc growth seen in the first. Looking ahead,

Germany’s prospects are seen as depending on how much the US and China can compensate for deterioration in the eurozone, as well as the robustness of German domestic demand. Andreas Rees, an economist at UniCredit, said: “The million-euro question is whether — and for how long — German companies and consumers can keep the pace in the face of eurozone turbulence.” Germany sold €3.4 billion (£2.7 billion) of 10-year government bonds yesterday (Wednesday), with an average yield, or interest rate, of 1.42 per cent — higher than the 1.31 per cent it had to pay at a similar auction last month.

Investors are focused on whether a Greek exit from the eurozone is imminent and if Spain will require a sovereign bail-out on top of the rescue of its banks which it has arranged. Spain has not as yet formally submitted a request to activate the EU emergency aid programme for its banks, the European Commission said yesterday in response to talk that the government would call for help earlier than planned.

Spanish figures showed that industrial output fell 1.9 per cent month-on-month in June, 6.3pc down on a yearly basis. As economies falter, the risks of trade tensions and protectionism are seen as increasing. France, which last month saw its biggest car maker, Peugeot, announce plans to close a plant and cut 8,000 jobs, claims its market has been flooded by car imports from South Korea.

After France asked the European Commission to begin monitoring car imports from South Korea, the South Korean government yesterday dismissed France’s claims as “groundless”.

— The Telegraph Group Limited, London 2012