Euro area in recession, Japan to follow

Last week's data showed that the eurozone economy has fallen into recession while Japan looks likely to follow.

A report last week showed that real gross domestic product in the euro area fell 0.1 percent in the third quarter. It had fallen 0.2 percent in the second quarter. This means that the eurozone economy has now declined for two consecutive quarters, a widely-used definition of a recession.

Another report last week showed that Japan's economy contracted 0.9 percent in the third quarter. It had grown 0.1 percent in the second quarter.

While Japan's economy has not suffered two consecutive quarters of decline, the prospects are not good. A report in the previous week had shown that the index of leading economic indicators had fallen in September for the fifth month in six.

Last week's economic data from the United States were also mostly negative, with retail sales and industrial production falling in October and initial claims for unemployment benefits surging in the week ending 10 November. The weakness, though, was mostly attributed to superstorm Sandy, so it is unlikely to last.

Indeed, a report from the Organisation for Economic Co-operation and Development last week indicates that until the storm, the US economy had actually been stabilising. The composite leading indicator for the US rose to 100.9 in September from 100.8 in August, the second consecutive monthly increase.

The improvement for the US helped keep the composite leading indicator for the OECD area as a whole steady at 100.2 in September.

The indicators for the euro area and Japan, however, pointed to continued weakness for these economies. The CLI for the euro area stayed at 99.4 in September while the CLI for Japan fell to 100.2 from 100.3 in August.