Eurozone economic recovery ran out of steam in Q4 as Germany stagnated, Italy contracted anew

Eurozone economic growth ground to a halt in Q4

LONDON — The economic recovery in the 16 countries that use the euro ground to a halt in the last three months of 2009 as output stagnated in Germany and contracted once again in Italy, official figures showed Wednesday.

In its latest estimate for the quarter, Eurostat, the EU’s statistics office, said eurozone economic activity was flat, in contrast to its previous prediction of 0.1 percent quarterly growth.

The downward revision was unexpected and provides further evidence of how fragile the recovery in the eurozone is — it was only in the third quarter of 2009 that the bloc emerged from recession with 0.4 percent growth.

The figures are expected to cement market expectations that the European Central Bank will keep its key interest rate on hold at the record low of 1 percent for much, if not all, of this year.

The central bank meets Thursday to decide on interest rates and its president Jean-Claude Trichet is set to keep his dovish tone — especially as many countries in the eurozone enact big budget cuts to get their financial houses in order.

The Eurostat figures showed that Greece, the most heavily indebted euro country, contracted by 0.8 percent in the fourth quarter, while Ireland, which has enacted deep budget cuts of its own, saw output plunge by 2.3 percent.

However, they are small economies and the headline eurozone figure depends on the heavyweight countries like Germany, France and Italy. While France managed to post strong 0.6 percent quarterly growth, German output was flat while Italy contracted by 0.3 percent.

Despite the fourth quarter slowdown, figures elsewhere sustained hopes that the eurozone recovery bounced back in the first quarter of 2010.

A business survey of around 2,000 companies from financial information company Markit suggested the eurozone economy may be growing at its fastest rate since August 2007, with Spain and Italy both showing an improvement.

“Thankfully, the business surveys are giving a stronger picture of the first quarter….but fiscal consolidation will act as a heavy drag on growth in future, particularly in the peripheral economies,” said Jennifer McKeown, senior European economist at Capital Economics.

The Markit survey helped offset the impact of the downward revision to growth in the currency markets, and the euro was trading flat on the day at around $1.34.