World financial crisis

Eurozone officially enters recession

Article published on the 2008-12-04 Latest update 2008-12-12 17:25 TU

European Central Bank meeting in Brussels.
(Credit: Reuters)

The eurozone entered recession in the third quarter according to figures released on Thursday. The economies of the 15 countries which share the European currency shrank by 0.2 per cent after contracting by a similar amount in the second quarter, meaning the bloc has officially entered recession. The European Central Bank reacted by cutting interest rates by 0.75 per cent to 2.5 per cent.

Amidst the worse financial crisis in decades, the figures released by the Eurostat data agency mark the first recession since the adoption of the euro in 1999. While the EU as a whole narrowly escaped recession with no change in the second quarter and contraction by 0.2 per cent in the third.

The European Central Bank later announced that it would slash its main lending rate from 3.25 per cent to 2.5 per cent to help ease the bloc out of recession.

"The decision taken was a good one," according to Jean-Claude Juncker, chairman of the Eurogroup of finance ministers.

The ECB also cut its inflation forecast for 2008 to 3.3 per cent and predicted that 2009's inflation rate could drop as low as 1.4 per cent.

In other news across Europe, the Bank of England today announced a cut in interest rates of one per cent, which is the lowest level in Britain since 1951. This follows a similar move in November, when the base rate was cut by 1.5 per cent.

Britain's revenue and customs department also announced Thursday that it would close almost 100 offices which could lead to the loss of almost 3,400 jobs.

French President Nicolas Sarkozy unveiled a package worth 26 billion euros designed to protect the country against the economic crisis. The money will be used to protect jobs and ensure that the car and construction industry survive.

Meanwhile, Swiss bank Crédit Suisse declared a loss of almost two billion euros at the end of November and announced more than 5,000 job losses. Its shares lost more than five per cent of their value.

In Asia, there was bleak news as business investment in Japan slumped. Investment in new factories and equipment dropped by 13 per cent in the last quarter and pretax profits fell by 22.5 per cent.

Indonesia's central bank also cut interest rates by 0.25 per cent to 9.25 per cent to help stimulate growth.

While in the US, telecoms company AT&T announced the loss of 12,000 jobs and payment of 475 million euros in severance pay. Which has contributed to a warning from the Federal Reserve saying that unemployment could rise to 7.6 per cent next year.