Double-dip fears as output falls across the eurozone

The UK’s biggest trading partner suffered the decline in output as the debt crisis sweeping the continent escalated, with borrowing costs in struggling countries 
such as Spain and Italy remaining high.

But the eurozone performance still puts the UK in the shade, after figures last month revealed that Britain’s economy shrank by 0.7 per cent in the same period.

This compares poorly with the likes of Germany and France, which saw better-than-expected gross domestic product growth 
of 0.3 per cent and zero respectively.

ING Bank analyst Martin van Vliet said: “Indicators suggest there is a fair chance the eurozone economy might contract further in the third quarter, and hence enter a technical recession.”

A breakdown of the figures reveals severe declines in output, with Belgium suffering a 0.6 per cent decline in GDP, Italy contracting by 0.7 per cent and Portugal’s economy shrinking by 1.2 per cent. EU Economic and Monetary Affairs Commissioner Olli Rehn said the European Union and European Central Bank were ready to act if needed to shore up the bloc.

“To my mind it is clear that both the European Union and ... ECB are ready to take action once certain conditions are met, and if there is a request by some member state,” he said.

The Netherlands and Austria both saw growth of 0.2 per cent, while the whole of Europe, including non-euro countries, declined by 0.2 per cent.

The figures compare with 0.4 per cent growth in the US and 0.3 per cent growth in Japan.

But the single currency strengthened against most major currencies on the back of the better-than-expected performance from Germany and France.

Mr van Vliet said: “The country breakdown tells a tale of two regions. Northern eurozone economies are still defying technical recession, while southern Europe remains mired in recession.”

The figures came as a new study revealed growing numbers of British families are failing to cover their monthly bills compared with a year ago.

The share of households whose income is not enough to pay their bills has increased from 14 per cent a year ago to 16 per cent last month, Legal and General found.

However, among these families classed as “struggling”, the typical shortfall each month has halved to £42, compared with an average of £96 in January.

The study found the proportion of homes viewed as “stable”, with some money left over after paying monthly bills, has fallen from 43 per cent a year ago to 40 per cent.

Mark Gregory, Legal and General’s executive director of savings, said: “The continued economic recession appears to be gradually squeezing household income, with more homes struggling to stay out of debt this year.”