Eurozone Slips into Recession As Crisis Slows the Core Economies

The Eurozone slipped into its second recession in three years as the on-going sovereign debt crisis slowed growth in its core economies amid rising unemployment and social tensions around the region.

Economies of the 17-memember block contract by 0.1 percent in the three months ending in September, the region's statistics agency Eurostat said Thursday, after report had earlier shown that growth in Germany, the region's biggest economy, slowed to 0.2 percent for the same period.

France posted a surprise 0.2 percent gain in growth but the strength was unable to offset contractions in the Netherlands, Spain and Italy and the continued collapses in Greece and Portugal. The Eurozone figure follows a 0.2 percent slippage in the second quarter of this year.

Eurostat also separately confirmed its earlier reading of inflation for the Eurozone, which slowed to 2.5 percent last month from 2.6 percent in September

"If you look at the indicators for the fourth quarter you see that even Germany may not grow again and that shows that the economy has an enormous need for a new impulse," ING economist Martin van Vliet told Reuters. "My conclusion is that policymakers are not considering to take it easy with savings, so everybody is looking at what the ECB can do and what is happening to the euro. A weaker currency and monetary stimulus is needed to get the economy back on track."

The single currency fell modestly to trade at 1.2753 against the US dollar following the reports but rose to a two-week high of 103.44 against the yen. German bund futures fell to a session low 143.08.

Europe has been scared by violence associated by anti-austerity protests around the region this week, which included general stirkes in Spain and demonstrations in Rome and Lisbon. Further strikes and demonstrations are also being planned in Greece and France.

Industrial production around the region fell by 2.5 percent in September, Eurostat reported Wednesday, the steepest decline in four years and much more than the 1.9 percent analysts had anticipated. Output in France was down 3.2 percent and 2.3 percent in Germany, the data indicated.

"The ECB watches the survey data closely, and the weakness of the surveys has been a key factor behind the ECB already taking policy to what President Mario Draghi considers an appropriately accommodative stance," said Markit's chief economist Chris Williamson. "Draghi has already recognised that the economy is weak and will remain so for some time. The ECB is therefore likely to continue to put the onus firmly on the shoulders of national governments to implement reforms and take advantage of the OMT facility the ECB has offered, rather than feel pressured into undertaking more stimulus measures."