Eurozone Recession Deepens after Sharp Q4 GDP Slump [VIDEO]

The Eurozone slid deeper into recession after fourth quarter data showed the bloc's economy contracted far more than expected in the final months of a year that recorded no growth for the first time in two decades.

Eurostat reported a 0.6 percent contraction for the final three months of the year, the statistics agency said Thursday, after a 0.1 percent contraction in the previous quarter. The figures marks the first time since at least 1995 that the single currency zone failed to record a single quarter of growth. The bloc shrank 0.9 percent when compared to the three months ending in 2011, Eurostat said.

"The weakness in Q4 therefore reflects a number ofspecial or calendar related factors that may quickly be reversed," wrote Societe Generale economist Michel Martinez. "GDP in France and Germany is therefore expected to bounce back in Q1. In contrast, the continuing structural adjustment and fiscal consolidation are expected to remain a negative drag on growth in Spain and Italy. This sets the stage for an increasingly divergent growth outlook, which we think will be one of the main themes of 2013."

Italy's economy shrank an alarming 2.7 percent from last year, the country's statistics office said, and contracted by 0.9 percent in the final three months from the previous quarter.

The data followed news from Germany's Federal Statistics Office earlier in the session that showed Europe's largest economy shrank by 0.6 percent in the final quarter of 2012, deeper than the 0.5 percent slide expected by forecasters and the steepest decline since the height of the financial crisis in 2009. France, Europe's second biggest economy, suffered a 0.3 percent contraction. Japan reported its third consecutive quarterly decline with a 0.1 percent contraction in the final three months of last year.

"That was a bad fourth quarter. It was down to companies investing less due to uncertainty linked to the debt crisis," Commerzbank economist Joerg Kraemer told Reuters. "It was also, however, due to a weak global economy which put the brakes on German exports. But both these negative factors have fallen into the background. The debt crisis has ebbed significantly and the global economy has turned up. Therefore all the important early indicators for Germany are pointing upwards. I expect noticeable economic growth again in the first quarter."

The single currency fell to a session-low 1.3343 against the US dollar immediately after the Eurozone data release while bund futures hit a session high of 142.35.

"Comparatively weak foreign trade was the decisive factor for the decline in the economic performance at the end of the year: in the final quarter of 2012 exports of goods declined significantly more than imports of goods," the Statistics Office said in a statement of the German data.

France swung into contraction after a 0.1 percent advance in the third quarter of last year amid tens of thousands of job losses and eroding confidence in the nation's manufacturing sector. Finance Minister Pierre Moscovici said Wednesday that the government may be forced to cut its full year growth estimate and miss its publically stated aim to reduce its budget deficit to 3 percent of GDP.

In Japan, the world's third largest economy unexpectedly shrank by 0.1 percent in the three months to December, a third consecutive contraction, putting the newly-elected Shinzo Abe government under pressure to take more radical steps towards recovery.

Analysts expected the economy to grow by 0.1 percent during the quarter. On an annualised basis, the economy contracted 0.4 percent in the fourth quarter, the third consecutive period of negative growth.