Germany, France, Italy Suffer Dramatic GDP Falls

Germany's economy suffered a record slide in the final quarter of last year and France shrank at the fastest pace in 34 years, suggesting grim forecasts for euro zone GDP, due later on Friday, could be too optimistic.

Italy provided no respite -- its economy declined by 1.8 percent on the quarter, significantly worse than forecasts for a 1.2 percent slide and the biggest drop since at least the start of the data series in 1980.

German gross domestic product shrank a bigger-than-expected 2.1 percent quarter-on-quarter, its worst quarterly performance since reunification in 1990, preliminary data showed.

Economists polled by Reuters last week had forecast GDP would drop by 1.8 percent on the quarter.

French GDP fell 1.2 percent quarter-on-quarter. Economists had predicted a drop of 1.1 percent.

"These are huge contractions in Europe, the largest in living memory in most cases," said Ken Wattret, economist at BNP Paribas.

The French figures were published on Thursday, a day early, after a group of statisticians leaked them in protest at the government's early announcement of some data.

A separate report showed French job creation fell 0.6 percent quarter on quarter, as companies cut workforces.

French Economy Minister Christine Lagarde said she expected a tough 2009. "We will have a difficult year ... I think growth will be lower than -1 percent," she told RTL radio.

Broader euro zone data are due at 10:00 a.m. London time with analysts saying risks to the forecasts of a 1.3 percent contraction in the fourth quarter are now skewed firmly to the downside.

Germany, Britain and the euro zone are already officially in recession -- as are the United States and Japan.

Anaemic French growth in the third quarter officially keeps it just out of the clutches of recession.

Other statistical releases showed Dutch GDP shrank 0.9 percent on the quarter while the Austrian economy sagged by 0.2 percent, the first fall in nearly eight years.

Armando Franca / AP Flags of member states of the European Union.

Augmenting the raft of bleak figures, Spanish data on Thursday showed its economy shrank by one percent, its fastest pace in 15 years, pushing it into recession for the first time since 1993.

Friday 13th

"This is really Friday the 13th. It did not come as a surprise anymore but still it is shocking," said Carsten Brzeski at ING Financial Markets of the German figures.

"The only positive note ... is that a horrible fourth quarter can now finally be filed away. It can hardly get worse. However, the new year has not started well," he said.

"A recovery in the truest sense of the word will only materialize in 2010." Germany's Federal Statistics Office said the contraction was led by a decline in investment and net trade.

Since 1990, Europe's largest economy had never previously shrunk by more than 1.2 percent in a quarter, according to Bundesbank data.

The October-December period was the third quarter in a row in which the economy shrank. The last time was between late 2002 and early 2003.

Government officials have already said further contraction is likely in the first quarter of 2009.

In France, Lagarde took heart from the fact that household consumption, a key driver of French growth, rose 0.5 percent. It was the only bright spot.

Business investment fell 1.5 percent while public investment dropped 1.6 percent. Exports tumbled 3.7 percent and imports slid 2.2 percent, while stocks declined by 0.9 percent, confirming dire news from companies.

"The fourth-quarter contraction is the worst since the fourth quarter of 1974, after the first oil shock," BNP Paribas analyst Dominique Barbet said.

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