By Simone Meier Feb. 12 (Bloomberg) -- Europe’s recovery almost stalled in the fourth quarter as waning spending and investment in Germany unexpectedly brought growth in the region’s largest economy to a halt. Gross domestic product in the 16-nation euro region rose 0.1 percent from the third quarter, when it gained 0.4 percent, the European Union’s statistics office in Luxembourg said today. Economists forecast expansion of 0.3 percent, the median of 34 estimates in a Bloomberg survey showed. The recession in Greece deepened, with GDP falling 0.8 percent in the fourth quarter after a 0.5 percent slump in the previous three months. European governments are struggling to contain the fall-out from Greece’s budget crisis as they phase out the stimulus measures used to pull the economy out of a recession. As market turmoil pushes bond yields higher across southern Europe, the recovery is in danger of losing momentum. “Last year, markets asked for stimulus measures and now they’re asking governments to cut their deficits,” said Sylvain Broyer, chief euro-region economist at Natixis in Frankfurt. “There’s a risk of aggressive budget cuts, hurting an expansion. We’re still far from a self-sustained recovery.” Greek Debt The euro fell for a third day and was down 0.9 percent to $1.3569 as of 10:04 a.m. in London. It’s fallen 7 percent in the last two months on concern that Greece’s fiscal problems will spread to other countries. Greece needs to sell 53 billion euros ($73 billion) of debt this year, equivalent to about 20 percent of its GDP, to finance the EU’s largest budget deficit. From a year earlier, euro-area GDP declined a seasonally adjusted 2.1 percent in the fourth quarter. For the full year, the economy contracted 4 percent. Separate data showed that industrial production in the region fell 1.7 percent in December, the most in 10 months. The German economy stagnated in the fourth quarter after recording 0.7 percent growth in the previous three months, while Italian GDP fell 0.2 percent. France’s economic expansion accelerated to 0.6 percent from 0.2 percent. In Spain, the economy shrank for a seventh straight quarter in the three months through December. ‘Serious’ Europe’s governments face a growing dilemma as they seek to fortify recoveries at a time when rising sovereign-debt burdens threaten to hobble expansion. EU leaders yesterday ordered Greece to get its deficit under control and pledged “determined and coordinated action” to protect the currency region. “Greece will have to implement fiscal austerity measures and get public finances back in order,” said Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin. “There’s a recognition that this is serious.” With governments phasing out incentives and unemployment at 10 percent, the highest in more than 11 years, Europe’s recovery is showing signs of waning. Expansion in service and manufacturing industries slowed in January and investor confidence fell for the first time in seven months in February. Renault SA, France’s second-largest carmaker, on Feb. 11 forecast a 10 percent contraction in European auto demand this year. Chief Executive Officer Carlos Ghosn said there’s “still a lot of uncertainty and volatility.” Bernd Scheifele, CEO of HeidelbergCement AG, is planning an additional 300 million euros in cost cuts this year after he said on Feb. 10 that the company’s markets “showed no recovery in the fourth quarter.” Export Boost Weaker domestic demand may be countered by an export boost from expansion in Asian economies. The International Monetary Fund last month forecast 2010 economic growth of 9.7 percent and 7.8 percent in China and India, respectively, compared with 1.6 percent expansion in the euro area and 2.4 percent in the U.S. The IMF sees the global economy expanding 3.9 percent. Bayerische Motoren Werke AG, the world’s largest maker of luxury cars, forecast on Feb. 5 that China deliveries may increase at least 10 percent this year. The ECB on Feb. 5 kept borrowing costs at a record low of 1 percent to bolster the recovery. President Jean-Claude Trichet said on that day that the euro-area economy will experience only “moderate” economic expansion this year. The statistics office is scheduled to release a breakdown of fourth-quarter GDP next month. To contact the reporter on this story: Simone Meier in Dublin at smeier@bloombert.net

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