TOUGH TIMES AHEAD:
A top European Union official said France, Italy and Spain faced a "catastrophic" slump in exports as a fresh batch of gloomy data hit the eurozone yesterday.
French industrial output slumped 0.5pc in February, following a 2.2pc contraction announced last week by Germany. The slide was blamed on high oil prices and the continued strength of the euro against the dollar and key Asian currencies.
The French prime minister Jean-Pierre Raffarin admitted yesterday that he now had no hope of fulfilling his pledge to cut unemployment below 10pc over coming months. The yield on 10-year French bonds fell to near historical lows of 3.58pc.
The aborted recovery is causing growing alarm at the European Commission and the European Central Bank. Both bodies have slashed their eurozone growth forecasts from over 2pc to 1.6pc in 2005.
A senior EU official said the eurozone was now acutely vulnerable to any slowdown in the United States, having failed to generate enough internal demand to sustain recovery.
"I'm afraid there is a high probability that Italy, France and Spain could see a catastrophic drop in exports," he told the Telegraph. The official said the eurozone's problems were rotating from Germany to other countries with fast-rising labour costs, even if German consumers remained traumatised for the time being by unemployment of 5.2m, the highest level since the Great Depression.
The Spanish economy is in the final stages of a credit boom caused by inappropriately low interest rates. Spanish property rose 17pc last year, while the trade deficit ballooned to €60.7billion, or 7.7pc of GDP.