The eurozone inching closer to recession as statistics released yesterday show that the economy contracted in the second quarter for the first time since the launch of the euro.

GDP declined by 0.2 percent in the three months to June in the euro area and by 0.1 percent in the EU27 compared with the previous qaurter, according to flash estimates published by Eurostat, the Statistical Office of the European Community.

Compared with the same quarter of the previous year, seasonally adjusted GDP grew by 1.5 percent in the euro area and by 1.7 percent in the EU27 in the second quarter of 2008, after a 2.1 percent and 2.3 percent growth respectively in the previous quarter.

While concerns mounted in Europe as the two consecutive quarterly decline, evidence of growing global inflationary pressures continued to build: US data showed consumer prices rose twice as fast as forecast by economists in July, hitting an annualrate of 5.6 percent -- the highest since January 1991.

In the eurozone, inflation was a record 4 percent in July, according to Eurostat, the European Union's statistical office, although that was lower than its original estimate of 4.1 percent.

Expectations for inflation in the longer term were the gloomiest since the euro was introduced in 1999, the European Central Bank reported yesterday.

Financial markets have priced in only a slight chance of a ratecut by the end of 2008.

The second-quarter contraction came in spite of an apparent improvement in the US, where gross domestic product rose 0.5 percent in the same period.

Two consecutive quarters of negative growth mark a technical recession.

Even during the period of sluggish growth at the start of this decade, quarterly eurozone growth rates stayed positive.

Eurozone politicians and economists said the eurozone's deterioration reflected largely external shocks and a correction from a strong first quarter, when GDP rose by 0.7 percent, boosted by a strong German performance.