Europe's sovereign debt crisis seems to have affected the economic growth of a number of countries, with Italy and the Netherlands pushed into recession, according to latest data.

According to data released on Wednesday, Germany, the single currency area's biggest economy, saw its gross domestic product (GDP) shrink by 0.2 per cent in the fourth quarter of 2011, but over the whole year it actually grew three per cent.

Among the eurozone countries to publish preliminary fourth-quarter GDP data so far, only France (0.2 per cent) and Finland (0.7 per cent) saw their economies expand.

Economic output across the 17-nation currency area fell 0.3 percent in the fourth quarter from the third, the European Union's statistics office Eurostat said on Wednesday.

GDP Fourth quarter
 
  Eurozone: - 0.3%
  Germany: - 0.2%
    France: + 0.2%
    Finland: + 0.7%
    Italy: - 0.7%
    The Netherlands: - 0.7%
    Czech Republic: - 0.3%

The situation was worse in the Netherlands, Italy and the Czech Republic which all found themselves in recession, which is technically defined as two consecutive quarters of GDP contraction.

The Netherlands shrank by 0.7 per cent, while Italy's economy contracted a steeper than expected 0.7 per cent in the final part of last year.

The International Monetary Fund forecasts a full-year contraction of 2.2 per cent in 2012, while the Bank of Italy sees a more modest decline of 1.2-1.5 per cent. The government still has an official projections of -0.4 per cent, considered unrealistic by all independent forecasters.

But analysts said that at first glance the data appeared better than some had expected, with the eurozone economy as a whole contracting rather less than had been expected at the end of last year.

"The latest broad-based weakness in the official figures does not herald another negative quarter or even a deeper recession," Alexander Koch, UniCredit economist, said.

Germany's robust annual growth owes to that fact that many of its major trading partners are outside the eurozone, allowing it to benefit from a pick-up elsewhere even if Europe slips into recession, according to analysts.

The dip in GDP was "not as deep as expected, confirming that the German economy only took a growth pause and is not approaching a new recession”, Carsten Brzeski, economist at ING Belgium, said.

With wrangling over a second Greek bailout still unresolved, data on Tuesday showed Greece's economy shrank by a seven per cent year-on-year in the fourth quarter. The country has been in recession for five years.

Gerard Lane, an equity strategist at Shore Capital, said it was important to draw a line in the sand, and that the eurozone and its bourses could be better off without Greece.

"If Greece is allowed to fall longer term it improves the situation," he said.

Allowing Greece to default while supporting Ireland and Portugal would show that the euro zone is serious about its demands for austerity measures and reforms, he said, adding that the euro could appreciate in the longer term if the currency block loses a weaker member.

Source: agencies