Collapsing exports and dwindling business investment have pushed the eurozone economy into the deepest contraction in the bloc's 10-year history, official EU data shows.
After pulling back only 0.2% in the third quarter, the eurozone economy shrank by 1.5% in the final three months of 2008 from the level the previous quarter, the Eurostat data agency said on Thursday, confirming a first estimate.
The dramatic deterioration was driven by a 7.3% drop in exports in the fourth quarter while business investment fell by 2.7% in the face of a global economic and financial crisis.
"With the global economic downturn picking up speed and credit conditions likely to continue to tighten, we expect further sharp falls to come," said Ben May at consultants Capital Economics.
"Worryingly, falling inflation and low levels of household debt were not enough to prevent consumer spending from falling by 0.9%," he added.
On a 12-month basis, the eurozone economy contracted by 1.3% in the final quarter last year after growing 0.6% in the third quarter, Eurostat said.
However, for the whole of 2008, including before the financial crisis' dramatic turn for the worse in September, the eurozone economy eked out growth of 0.8%, down sharply from the 2.6% recorded in 2007.
Economist Howard Archer at consultants IHS Global Insight warned that the drop in eurozone activity had not bottomed out and that worse could be expected since the start of the year.
"Worryingly, latest data and survey evidence for the eurozone is largely dire across the board and point to ongoing substantial contraction," he said.
"We now expect eurozone GDP (gross domestic product) to contract by around 3% in 2009 as it is hit hard by global economic recession, extended tight credit conditions and financial sector problems, markedly rising unemployment and very weak business and consumer confidence," he said.
Eurostat's data also showed that the 27-nation EU economy also shrank by 1.5% in the last three quarters of 2008, bringing the slump over 12 months to 1.3%.
AFP