The recession in the eurozone deepened at a record pace in the final three months of 2008, according to data out yesterday, setting the tone for a cheerless G7 meeting in Rome this weekend where finance leaders will focus on the global crisis.
Output across the 15-nation single currency zone fell by 1.5% between October and December, worse than economists had expected. It was the third successive quarter of contraction and the fastest decline since the eurozone was created in 1999. Analysts at Capital Economics said the "recession in the region is deepening at an alarming rate" and forecast a 3% decline this year.
Germany, the biggest economy in Europe, depends heavily on exports and has begun to suffer acutely from the collapse in global demand. In the most recent quarter, the German economy contracted by 2.1%, the steepest decline since the country was reunified in 1990. Italy declined by 1.8% and France by 1.2%.
"Today's data wipes out any illusion that the eurozone is getting off lightly in this global downturn," said Jörg Radeke, an economist at the Centre for Economics and Business Research.
Europe's woes will add to the urgency facing members of the G7, who will discuss the need for regulatory reform in the financial markets and stimulus to get the world economy moving again.
The meeting comes against a backdrop of rising fears about protectionism. Germany and Japan have expressed particular concerns about a "buy American" clause in the US stimulus plan. The decline in Europe is now worse than in the US, which reported a 1% contraction in the final quarter of last year.
"For the US and Europe, who have been pushing for open markets, or any other countries to resort to protectionism under current circumstances would be, I think, absolutely wrong," said Japanese finance minister Shoichi Nakagawa.
The chairman of the eurozone finance ministers, Jean-Claude Juncker of Luxembourg, also said that aid offered to auto firms in Italy and France, on condition that domestic plants are kept open, should be examined carefully.
A wider measure of 27 countries, which includes Britain and the eastern European countries that joined the EU in 2004, also suffered a 1.5% decline in output during the quarter, according to the statistics office, Eurostat. "Now it is official; the eurozone economy is in its deepest recession since the end of the second world war," said Christoph Weil, an economist at Commerzbank.
Howard Archer, an economist at Global Insight, said the decline would further encourage the European Central Bank to cut interest rates from 2% to 1.5% at its scheduled meeting next month.