Europe in grip of raging recession

PARIS: Europe's economy lurched deeper into downturn on Friday as France led a trio of countries entering recession, the eurozone shrank by a record rate, and Germany registered its worst-ever performance.

As Asia's biggest economy, Japan, faced signs of mounting deflationary pressures, the gloomy data from Europe cast a pall over recent claims that the first green shoots of recovery had been sighted.

However Europe's leading stock markets rose at the open, with analysts saying the rises reflected an expectation that the crisis was bottoming out.

France became the last of the major European Union countries to dip into recession when figures from the official statistics agency INSEE, showed French gross domestic product shrank 1.2 percent in the first quarter of 2009 after falling by 1.5 percent in the final quarter of last year.

A recession is usually defined as two quarters of negative growth.

INSEE also updated its figure for French growth in 2008, reporting that the economy had grown by only 0.3 percent last year rather than the 0.7 percent it had earlier offered as an estimate.

Meanwhile, France's neighbour and main trading partner Germany said its recession deepened in the first quarter, when the economy shrank by 3.8 percent, its strongest contraction since quarterly records began in 1970.

Germany, Europe's biggest economy and which accounts for a third of eurozone output, contracted by 3.8 percent in the first three months of the year compared to the final quarter of 2008, the statistics office said.

Official figures made equally depressing reading from other parts of central Europe, including Austria which slid into recession after its economy contracted by 2.8 percent in the first three months of the current year.

Romania also joined the recession club when its economy shrank by 2.6 percent in the first quarter while Italy, Slovakia and Hungary all recorded negative growth.

An official EU estimate showed that the 16-nation eurozone contracted a record 2.5 percent in the first quarter.

The eurozone suffered its deepest slump on records going back to 1995 in the first quarter as the economy shrank 4.6 percent over one year, according to the Eurostat data agency in a first estimate.

Despite the grim growth figures, Europe's main stock markets rose as investors looked forward to a prospective recovery, dealers said.

London's FTSE 100 index of top shares gained 0.75 percent to stand at 4,395.11 points in early trade while in Paris the CAC 40 was up 0.72 percent and Frankfurt's DAX 30 advanced 0.40 percent.

"This time around, the worst really seems to be over," said Carsten Brzeski, an analyst at ING bank.

"Looking ahead, the second quarter has the potential to surprise to the upside," boosting stock markets, he said.

Japanese share prices closed up 1.88 percent, mirroring gains on Wall Street.

The rises came despite mounting concerns that the world's number two economy may be facing a repetition of its 1990s deflationary spiral when falling prices led to weak consumer spending.

Central bank figures showed wholesale prices fell 3.8 percent in April from a year earlier, the steepest drop in 22 years.

However Finance Minister Kaoru Yosano said there were signs the recession was abating with Japan's core machinery orders falling 1.3 percent in March from the previous month, less than expected.

"I welcome some signs of easing in the economic slowdown. But we need to remain alert about overall economic conditions," he told reporters.

US Treasury Secretary Timothy Geithner said earlier this week the financial system "is starting to heal" as a response to government efforts to get more credit flowing, including moves to clean up so-called "toxic assets" that are weighing on banks' ability to lend.