A collapse in exports and a fall in private demand and investment produced the deepest ever quarterly euro zone economic drop in the fourth quarter of 2008, data showed.
The European Union's statistics office confirmed its earlier estimate that quarter-on-quarter gross domestic product in the euro zone shrank 1.5 per cent in October-December after a 0.2 per cent drop the previous quarter.
Year-on-year, Eurostat said the contraction was 1.3 per cent, deeper than the previously reported 1.2 per cent.
"The interesting aspect in the breakdown of the data is falling consumer spending, which is quite significant. This suggests the first quarter could be as bad as the fourth quarter, 2008," said Luigi Speranza, economist at BNP Paribas.
"We could have ... a fall of at least 1 per cent in the first quarter. It means for 2009, we start from a very, very low level. The consensus for growth for the euro zone in 2009 remains on the downside," he said.
The news comes as the European Central Bank meets on interest rates amid strong market expectations it will cut borrowing costs for the 16 countries now using the euro by 50 basis points to 1.5 per cent.
The biggest negative contribution to the overall quarterly fall came from net trade, which took away 0.9 percentage point. Tumbling exports subtracted 3.1 percentage points while a hefty fall in imports added 2.2 percentage points.
Household demand took away another 0.5 percentage point and investment 0.6 point. Government spending subtracted 0.1 percentage point.
Apart from imports, the only positive contribution to growth came from inventories, which added 0.6 percentage point.
“The breakdown...shows very worrying extreme weakness across the board. Consumer spending fell very sharply, indicating that rising unemployment and deepening concerns over the economic situation and jobs outweighed the benefit of retreating inflation," said Howard Archer, economist at IHS Global Insight.
"Meanwhile, investment plunged as businesses faced slumping demand, weakening capacity utilization, very tight credit conditions and deteriorating profitability," he said.
"In addition, euro zone exports plummeted as they were dragged down by sharply weakening global economic activity and the lagged impact of the persistently strong euro," he said.
Eurostat said that over the whole of 2008, GDP grew by 0.8 per cent in the euro area and by 0.9 per cent in the European Union of 27 member states, against 2.6 per cent growth in the euro zone in 2007 and 2.9 per cent in the EU respectively.
In the United States, the economy expanded 1.1 per cent last year and contracted by 0.7 per cent in Japan.
Reuters