Eurozone growth weak, even before belt tightens

Europe began the year with weak economic growth, even before a string of governments launched tough budget cutbacks which some experts warn could crimp recovery from the downturn.

EU official data on Wednesday stood by a previous estimate that output by the debt-laden eurozone grew by just 0.2 percent in the first quarter of 2010, following even weaker growth of 0.1 percent at the end of 2009.

Growth across the wider 27-nation European Union, which includes Britain and Poland, was also 0.2 percent from January to March compared to output in the previous quarter, the Eurostat statistics agency said on the basis of seasonally adjusted data.

The latest data on what was happened at the turn of the year emerges just as European governments are imposing impose drastic spending cuts to reduce runaway public deficits and put a lid on a debt crisis.

There is widespread concern that the debt crisis, if untreated, but also the medicine in the form of budget cuts, could halt economic recovery and even cause a so-called double-dip recession.

From Britain to France and Greece, governments are launching unpopular measures including a freeze of public sector salaries, tax rises and a higher retirement age.

Although growth will probably improve in the second quarter, the 16-nation eurozone faces "significant obstacles to robust growth", said Howard Archer, chief European economist at financial analysis group IHS Global Insight.

"Worryingly, there are signs in the very latest survey releases that the heightened eurozone debt crisis and an associated earlier or more aggressive tightening of fiscal policy in a number of countries is starting to weigh down on economic activity," he said.

In June, a key leading indicator of eurozone growth, the purchasing managers' index (PMI) compiled by data and research group Markit, slowed for the second month in a row amid weaker exports, waning domestic demand and a slowdown in orders.

"The Eurozone PMI data indicate that growth in the region is likely to have peaked and the risks have increased of a further easing in coming months," said Markit chief economist Chris Williamson.

The main engine of the economic recovery, export growth "has weakened" and domestic demand "remains in the doldrums as economic stimulus measures are replaced by austerity," he said.

Germany, the continent's export powerhouse, was hit by a sudden fall in industrial orders in May.

Data showed that orders placed with German industry, a pivotal exporting force in the eurozone, fell unexpectedly in May by 0.5 percent, highlighting a risk that Europe's mainstay economy could slide towards a new recession.

The Eurostat data showed that the German economy grew by 0.2 percent in the first quarter, which was slightly better than France and Spain which both recorded growth of 0.1 percent.

The economy of Greece, the epicentre of the eurozone's debt crisis, contracted by one percent. The Greek government has imposed draconian austerity measures in exchange for a 110-billion-euro (139-billion-euro) bailout from the EU and IMF.

Ireland, another EU member undergoing deep budget cuts to rein in a runaway public deficit, posted the highest growth rate compared with output in the previous quarter as its economy grew by 2.7 percent.

Sweden was next with growth of 1.4 percent followed by Portugal, another country facing austerity, with 1.1 percent growth.

On a 12-month basis, the eurozone economy grew by 0.6 percent in the first quarter compared to output in the same period in 2009. The overall EU posted growth of 0.5 percent, the Eurostat figures showed.