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According to the European Union statistics office Eurostat, the economy for the 17-member eurozone shrank by 0.6 per cent in 2012’s fourth quarter, up from earlier forecasts of 0.4 per cent.
Europe’s powerhouses Germany and France also registered contraction by 0.6 and 0.3, respectively, delivering a blow to hopes that the eurozone would successfully emerge from recession in 2013’s first quarter.
Earlier this week, the European Central Bank released data which showed that consumer confidence had taken a hit.
Confidence in the euro was also shaken as Bulgaria announced that it would delay applying for entry into the eurozone for the second consecutive year.
“If I start the path of entry, I don’t know exactly what I’m entering,” Simeon Djankov, Bulgaria’s finance minister, said at the Peterson Institute for International Economics in Washington earlier this week.
“We are basically going to wait until we see all the institutions that are in the euro zone.”
The aftermath was felt well beyond Europe.
Demand for gold bullion fell to a six-week low on euro data on Thursday and market experts are saying Japan’s Nikkei is likely to fall on data showing shrinking exports to Europe.
The euro crisis appears to continue to hurt the Japanese economy despite its devaluation of the yen; Tokyo reported earlier this week that its GDP also contracted by one per cent in the fourth quarter of last year.
The eurozone recession and Japan’s devaluation strategy are likely to figure prominently on the agenda of the G20 meeting in Russia this weekend.
Last month, China urged European and Japanese officials to improve coordination and cooperation to avoid a possible currency war.
In early January, finance ministers from a number of G8 and developing countries, including Russia, accused Japan of manipulating the gradual devaluation of the yen since September in order to give its exports an advantage.
At the G20 meetings this weekend, delegates are likely to single out Japan for using “central banks are there to clean up political bad decisions and a lack of competitiveness”, echoing a statement made by German Chancellor Angela Merkel at Davos in early February.
Japan has consistently denied manipulating the valuation of its currency.