Europe's economy contracted in Q2 for the first time since the euro was launched more than 10 years ago, as exports underperformed and energy costs cut into consumers' disposable income, Eurostat, the European Union's statistics office announced (PDF) Thursday.

Euro-zone Q2 GDP fell 0.2% and EU27 Q2 GDP -- which includes nations in the European Union but not formally a part of the euro currency system -- fell 0.1%, Eurostat said. In Q1, Euro-zone GDP rose 0.7%.

Further, on a year-over-year basis, euro-zone GDP increased 1.5%, with inflation running at about 4.0%, well above the European Central Bank's 2.0% annual limit.

Economist: 'Bad news for global economy'

Economist David H. Wang told BloggingStocks Thursday Europe's slowing economy "is bad news for the global economy."

"This is bad news because we need European growth to prevent a global economic slowing. But the economies in two major European economies are clearly slowing. Germany's GDP fell 0.5% in the first quarter, and France's fell 0.3% in the second quarter, so given their make-up in the euro-zone, Europe has experienced a pronounced slowing," Wang said.

Wang said two factors are weighing on Europe's economy: slowing export sales and declining disposable income.

"On trade, the strong euro has hurt exports but the majority of the decline is due to the slow U.S. economy," Wang said. "Also, European consumers, like American consumers, are feeling the pinch of reduced disposable income, due to high energy and food prices."

Further, based on the above factors, Wang now expects 2008 euro-zone GDP to total 1.5-1.9%. "The oil-induced slowdown has hit Europe. I would be really surprised if Europe [GDP] stayed above 2.0% for 2008," Wang said. "It looks like retail purchasing power has declined too much for that to occur."

Economic Analysis: As economist Wang noted, bad news, indeed, for the global economy, and by implication, for the United States. Moreover, two major economic regions slowing is not a prescription for global economic recovery. Hence, it's now more likely that the ECB will have to lower its key interest rate, presently at 4.25%, soon to stimulate demand.