Slump looms in eurozone as economy takes a dive

The 0.3% decline for the euro's 17 member states in the quarter to December came amid market turmoil over the debts of vulnerable states like Italy and Spain, sapping confidence across the region.

The mighty German economy shrank 0.2%, while Italy and The Netherlands were both dragged into technical recession after two successive quarters of decline according to official figures.

The damage inflicted on the eurozone - which shrank for the first time since the second quarter of 2009 - is bigger than the 0.2% slide for the UK's own economy at the end of last year. Both are lagging well behind the US, where President Obama launched new stimulus measures last autumn, helping the world's biggest economy expand 0.6%.

The IMF has warned the eurozone will shrink 0.5% during 2012.

France provided one of the few bright spots in the region - managing 0.2% growth - although its own statistics body said it was on course to shrink during the current quarter. A growing divide between stronger nations and peripheral strugglers is also apparent as Spain and Italy's woes added to the economic plunges seen by bailed-out Italy and Greece over the period as austerity measures took a grim toll.

ING Bank economist Martin van Vliet said the debt crisis had "thrown the eurozone recovery into reverse" despite recent signs of improvement, particularly from Germany.

European Central Bank president Mario Draghi slashed interest rates twice in as many months at the end of last year to avoid a recession and took the unprecedented step of pumping nearly 500 billion into financial system in December last year to avert a credit crunch.

But the threat of a catastrophic Greek default is also looming over prospects as politicians resist yet more painful spending cuts.

EURO PAIN

Germany -0.2%
France +0.2%
Italy -0.7%
Spain -0.3%
Netherlands -0.7%
Belgium -0.2%
Austria -0.1%
Portugal -1.3%
Greece -1.8%