In a sign that the problems facing the European Union could escalate, the central executive branch of the 27-nation bloc announced that, for the second quarter in a row, gross domestic product (GDP) has shrunk. This signifies that the EU has officially re-entered recession after it lurched out of negative development as recently as 2009.
According to various news sources, the 0.2 percent decline in the third quarter of 2012 follows the 0.2 percent slip experienced during this year's second quarter. Economists that spoke with Bloomberg News explored the many possible reasons as to why this happened, including ongoing budget cuts and tax increases in troubled nations like Italy, Spain and Greece. Stronger-than-expected economic expansion in France and Germany buoyed the annually-adjusted averages, sparing the bloc from a worse GDP result. Despite those gains, things could get worse for the bloc as the year ends and 2013 begins.
"Overall I think it's remarkable that we haven't seen so far in the last year a stronger decrease in economic activity considering the strength of the euro-zone debt crisis," Alexander Krueger, a German economist, told Bloomberg. "Stopping the downward trend is the story for the first half of next year."
Could these developments have a negative impact on the United States? Given the interconnected nature of the global financial industry, European bank losses as a result of the recession could hurt the profits of U.S. companies in the coming months. Additionally, anxieties among investors might spark fears that American businesses are just as weak, prompting potential sell-offs that would exacerbate concerns about the U.S. fiscal cliff.
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