New Data Shows Euro Zone on Brink of Recession

The euro zone finds itself on the brink of recession after a steep downturn at the end of 2011 as retail sales fell and sentiment weakened, but data signaling improvement in the business climate may indicate the single-currency region is headed for a more mild recession than the last.

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Retail trade fell a worse-than-expected 0.8 percent in November, the European Union’s statistics office, Eurostat, reported on Friday. The European Commission’s measure of consumer confidence fell 0.7 points in December. In its overall reading of economic sentiment, the Commission said its indicator fell 0.5 points to 93.3, its lowest level since November 2009.

“This data has recession written all over it,” said Martin van Vliet, an economist at ING. “It is all but guaranteed that we are going to see a contraction in the euro zone in the fourth quarter,” he said.

The region is also facing high unemployment, with a joblessness rate of 10.3 percent of the working population in November, according to Eurostat, up slightly from a year ago when it was 10 percent. That compares to a U.S. unemployment rate that dropped to 8.6 percent in November.

The number of unemployed in the 17-nation bloc has increased for seven consecutive months, and hiring intentions fell further in December when the U.S. saw its jobless claims dropping from week to week.

But the one bright spot in all of data released on Friday was the improvement of the European Commission’s business climate indicator, which increased for the first time in 10 months as factory managers showed optimism about future production plans and export orders.

The indicator climbed to -0.31 points in December, up from -0.42 points in November.

Still, the euro zone’s economy is expected to contract in the fourth quarter of 2011, and is expected to continue that contraction in the first quarter of 2012.

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