Euro-zone in recession

The 15 countries that use the euro are officially in a recession, the European Union said Friday, as their economies shrank for a second straight quarter because of the world financial crisis and sinking demand.

EU statistics published Friday show the euro zone shrank by 0.2 percent in both the third and second quarters compared to the quarter before. Two successive quarters of negative growth is the usual definition of a recession. From a year ago, the euro-zone grew 0.8 percent in the third quarter and 1.4 percent in the second.

The entire 27 countries of the EU have so far escaped recession thanks to growth in eastern Europe. But they shrank 0.2 percent in the third quarter after zero growth in the second quarter-on-quarter. From a year ago, third-quarter growth was 1.7 percent and second-quarter growth was 0.8 percent.

Two of the region's largest economies — Germany and Italy — are in recession, Eurostat said, while France narrowly escaped, growing just 0.1 percent in the third quarter after shrinking in the second quarter.

The spending slowdown and tight credit conditions are starting to hurt: carmakers said Friday that sales are slumping even as euro-zone inflation calms from record highs. So far, euro economies have not seen the jobless rate surge — but the EU executive Commission estimates that it will rise steadily over coming months.

Business and consumer confidence figures show business and consumers are worried, with companies readying to make cutbacks and households trying to save more as they worry about job losses. Both are hurt by tighter credit conditions that raise the cost of borrowing money.

It is the first recession since the euro currency was launched in 1999, when the European Central Bank took control of interest rates. That is the major lever of economic growth because changing borrowing costs can stoke or cool growth.

AP