THE eurozone economy contracted in late 2011 for the first time since the depth of the global recession as the struggle to save the single currency took its toll on growth across the 17-nation region.

With even Europe’s powerhouse Germany suffering a decline in output, figures from Brussels showed that gross domestic product in the euro area declined by 0.3 per cent in the final three months of last year.

The fall was slightly smaller than the financial markets had been expecting but analysts warned that there was still a strong risk of a further drop in activity in the first quarter of 2012 — thereby fulfilling the technical definition of a recession.

With the United States, China and Britain all concerned about the impact of a deepening euro crisis on their economies, Europe will be top of the agenda when finance ministers and central bank governors from the G20 group of developed and emerging nations meet in Mexico City later this month. The International Monetary Fund believes that even on the assumption that the single currency holds together, the eurozone will contract by 0.5 per cent in 2012 before returning to modest growth in 2013.

Consumer confidence collapsed in the eurozone in the second half of 2011 amid fears that contagion effects from Greece would threaten the future of the single currency. Credit conditions have tightened, although recent business surveys have provided some hope that activity has started to bottom out.

A breakdown of the data released by Eurostat showed that German output shrank by 0.2 per cent in the final quarter of 2011, a slightly better outcome than the markets had expected, while Nicolas Sarkozy’s presidential re-election prospects received a boost when France — the eurozone’s second biggest economy - posted an unexpected 0.2 per cent rise in GDP.

The Netherlands suffered a 0.7 per cent decline, but elsewhere there was evidence of a clear north-south divide, with the crisis-hit countries of Italy, Portugal and Greece performing far more poorly than Austria, which dipped by 0.1 per cent, Belgium, where GDP was down by 0.2 per cent.

Italy, which was embroiled in a political crisis in late 2011 when Mario Monti replaced Silvio Berlusconi as prime minister, saw GDP decline by 0.7 per cent, while there were bigger falls of 1.3 per cent in Portugal and seven per cent in Greece. The decline in late 2011 left the annual growth rate in the eurozone at 0.7 per cent.

The writer is economics editor of the Guardian.—The Guardian, London