Data confirms recession in weakest eurozone economies

Data confirms recession in the eurozone's weakest economies last year, breathing new life into a heated debate on whether aggressive austerity measures may come at the cost of economic growth. The dire individual statistics for Italy, Greece, Portugal and Cyprus come just days ahead of a EU summit where the bloc's leaders are to mull ways to tackle the debt crisis, with countries led by France calling for growth measures while others led by Germany are holding firm for fiscal discipline. Last week, the EU's Eurostat data agency said that the 17-member eurozone sank deeper into recession in the last three months of 2012, with aggregate economic activity shrinking by 0.6 percent compared with the third quarter, when it had contracted by 0.1 percent. For 2012 as a whole, the eurozone economy contracted by 0.6 percent, Eurostat said. A recession is commonly defined as at least two consecutive quarters of declining economic activity.On Monday, official statistics showed that Italy's economy shrank by 0.9 percent in the fourth quarter from the third quarter, confirming a previous estimate which said the recession in the eurozone's third largest economy was deepening. It was Italy's sixth consecutive quarter of contraction -- the longest recession it has seen in two decades. A recovery is not expected to begin there until in the second quarter of this year. On Friday, the rating agency Fitch downgraded Italian debt, mainly on the back of an increasingly unstable political situation after February's election left no clear winner. Similar dark clouds seemed to be hovering over Portugal, where statistics show the economy contracted by 1.8 percent in the fourth quarter of 2012 and by 3.2 percent for the year as a whole. Bad news continued to trickle in for Greece as well, where the economy shrank by 5.7 percent in the fourth quarter of 2012 in an annual comparison based on provisional data.For the full year 2012, an AFP calculation showed that the Greek economy had contracted by 6.4 percent, which is slightly better than the estimate in Greece's current budget. If the figures are confirmed, it could mean that the worst of the deteriorating spiral might be over for Greece, but 2012 still marked its fifth year of recession, and growth is not expected to resume until in 2014. "We think it is still too early to call for a rebound in economic activity as disposable income continues to shrink and fiscal consolidation will remain a drag on growth," Barclays Capital economists Antonio Garcia Pascual and Fabio Fois wrote in a research note. An official estimate from Cyprus meanwhile showed that the Mediterranean island's economy shrank by 3.4 percent in the fourth quarter of 2012 from a year earlier, and by 1.1 percent from the third quarter. The dip marked the sixth successive quarter in which that country's economy has been in negative territory. The bright spot of the day came from the Organisation for Economic Co-operation and Development (OECD) which said economic growth was beginning to emerge in the eurozone, especially in Germany. In its forecast for 2013, Eurostat expects the eurozone economy to contract 0.3 percent before it bounces back with growth of 1.4 percent next year. The latest estimate by staff at the European Central Bank forecasts that eurozone business activity will decline by 0.5 percent this year before growing by 1.0 percent in 2014.