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UNEXPECTED STRENGTH

Germany, France pull euro zone out of recession

Brussels, August 14, 2013

The German and French economies grew faster than the United States in the second quarter, pulling the euro zone out of its longest recession.

Growth in the 17-country bloc was 0.3 percent from the previous quarter, with its two biggest economies both revealing unexpected strength, data from the European Union's statistics office Eurostat showed on Wednesday. A Reuters poll had forecast 0.2 percent.

Germany grew 0.7 percent, its largest expansion in more than a year thanks largely to domestic private and public consumption.

France's economy expanded 0.5 percent, pulling out of a shallow recession to post its strongest quarterly growth since early 2011. The turnaround was driven by consumer spending and industrial output, although investment dropped again.

That compared with around 0.4 percent growth in the quarter - 1.7 percent annualised - in the United States, considered one of the bright spots of the global recovery.

"For next year, our projections show the (European) recovery should be on a more solid footing, as long as we can continue to avoid new political crises and detrimental market turbulence," EU Economic and Monetary Affairs Commissioner Olli Rehn said.

He added there was no room for complacency.

Improvement was noticeable elsewhere in the bloc. Bailed-out Portugal's GDP leapt 1.1 percent in the quarter due to higher exports and an easing of previous investment contraction.

Austria and Finland also saw improved growth.

But recession continued in The Netherlands, as well among the debt-laden periphery including Spain and Italy.

"The return to modest rates of economic growth in the euro zone as a whole won't address the deep-seated economic and fiscal problems of the peripheral countries," researchers at Capital Economics wrote in a note.

UNEVEN, BUMPY RECOVERY AHEAD

Recent economic data and sentiment surveys had suggested the German economy was picking up after contracting in late 2012 and a weak start to 2013.

But look south and a different picture emerges.

The International Monetary Fund said earlier this month that Madrid's reform programme, fiscal consolidation and crackdown on external imbalances were bearing fruit, but that urgent action was needed to create jobs and stimulate growth.

The scope and form of the austerity drive in the European Union is now changing. Policymakers still say adjustments in excessive deficits and high debt are essential. But they now emphasise that any action taken must not choke growth and must help create jobs.

European Central Bank President Mario Draghi said this month that labour market conditions remained weak, though he expected the bloc's growth to benefit from a gradual recovery in global demand.

"Overall, euro area economic activity should stabilise and recover at a slow pace. The risks surrounding the economic outlook for the euro area continue to be on the downside," Draghi said after the ECB rate meeting on Aug. 1.

BEYOND THE EURO ZONE

In emerging Europe, the Czech Republic exited recession in the second quarter while the European Union's other bigger eastern economies improved, although there was little sign yet of the outright optimism among consumers needed to drive a stronger upturn.

Headline numbers showed the Czechs as expected firmly back in positive territory with growth of 0.7 percent compared with the first quarter. Hungary grew 0.1 percent and Poland 0.4 percent.

The pickup in emerging Europe is expected largely to have come from improvement in Germany and other larger euro zone countries to which the region's cheap and flexible businesses send much of their exports. – Reuters




Tags: France | Germany | European Union | Recession | Euro zone |

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