REUTERS

BRUSSELS A COLLAPSE in household spending, exports and manufacturing sucked the life out of the eurozone’s economy in the final months of 2011, the EU said on Tuesday, showing the scope of the downturn that looks set to become a fully fledged recession.

Output in the 17 countries sharing the euro shrank 0.3 percent in October to December from the third quarter, the European Union’s statistics office Eurostat said, confirming its estimate of last month and giving a more detailed breakdown.

The European Commission forecasts a recession of the same magnitude this year.

That would be the euro zone’s second contraction in just three years as the bloc’s debt crisis drags on a region that generates around 16 percent of the world’s economic output.

Many economists expect an improvement in the second half of 2012, assuming euro zone leaders can agree a big enough financial firewall that could rescue indebted states.

The EU’s top economic official, Olli Rehn, said on Tuesday he expected “a turning of the tide.

But that is little comfort to households, whose spending accounts for more than half of euro zone output. Suffering from stubborn inflation, government cuts and rising unemployment, households reduced their spending by 0.4 percent in the final months of the year, despite the Christmas period.

“Households will remain under pressure and we don’t expect any improvement because fiscal consolidation will deepen and inflation, while falling, remains quite sticky,” said Mario Valli, chief eurozone economist at Unicredit.

EU leaders signed a pact last week in Brussels to lock austerity into national budgets, signalling more cuts and more pain for European households as Germany leads a drive to reduce debt levels to regain investors’ confidence.

Many euro zone nations, including Belgium and Spain, are being pressured by the Commission to find billions of euros of savings to meet fiscal targets even as their economies contract.

The battle between austerity and growth was already evident in the fourth quarter.

Eurozone government expenditure fell 0.2 percent, while industry contracted 2 percent and imports were down 1.2 percent, making for some of the worst readings since the world was dragged into the 2008/2009 financial crisis.

Business surveys from this year suggest there will be no repeat of the biggest economic downturn since the 1930s, and there are tentative signs of stabilisation.