Recession ends in Eurozone

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PARIS -- Europe broke out of recession in the second quarter of the year, official data showed Wednesday, amid stronger domestic demand in France and Germany, ending a six-quarter downturn that has sapped confidence and thrown millions of people out of work.

The gross domestic product of the 17-nation eurozone grew by 0.3 percent in the April to June period from the previous three months, when the economy contracted by 0.3 percent, according to a report from Eurostat, the statistical agency of the European Union. That was slightly better than the 0.2 percent growth that economists had been expecting.

On an annualized basis, the eurozone grew by about 1.2 percent in the second quarter, short of the 1.7 percent second-quarter showing by the United States and 2.6 percent in Japan, but nonetheless a relief to the Continent, which has weathered an unemployment rate that has risen to 12.1 percent and a sovereign debt crisis that raised existential questions about the euro.

"It's not the end of the problems," said Ralph Solveen, an economist at Commerzbank in Frankfurt, Germany. "But the technical recession is over."

The economy as a whole of the European Union, which consists of 28 nations, also grew by 0.3 percent in the second quarter.

Germany grew by 0.7 percent, after stagnating in the first quarter. The gains were led by demand from households and government, the Federal Statistical Office reported from Wiesbaden, while exports and investment also rose. The news bolsters Chancellor Angela Merkel as her coalition government prepares for September elections.

France, which had declined for the two previous quarters, posted 0.5 percent quarterly growth, as household spending grew and companies increased exports of goods and services, although investment declined slightly.

Pierre Moscovici, the French finance minister, noted that it was the best showing since the first quarter of 2011, before President François Hollande took office, and hailed the result as justifying the government's economic policies.

Portugal, racked by austerity-induced recession and the recipient of a bailout from the troika of the European Commission, European Central Bank and International Monetary Fund, was the biggest surprise in the data. The economy there expanded by a robust 1.1 percent in the quarter, far above expectations that it would do little better than break even, and the fastest growth of any EU member.

Spain's economy shrank by just 0.1 percent, improving from a 0.5 percent decline in the first quarter.

The economy of Cyprus, still reeling from the collapse of its banks and the troika's remedy, shrank 1.7 percent, the worst showing of any EU member.

Mr. Solveen said external demand had helped the so-called periphery of the eurozone, those countries like Portugal, Spain, Italy and Ireland that have been among the hardest hit by the sovereign debt crisis and the hangover from the boom years. Recent data suggest Spain could be out of recession by the third quarter, he said.

But that very reliance on the outside world means the nascent recovery is at the mercy of growth in the United States and Asia, he said, adding that apart from Germany, "I wouldn't expect to see strong growth at least for the next year."

The outlook now, Mr. Solveen said, is for Europe to continue limping along for the next few quarters, with a small full-year contraction likely in 2013, followed by growth of less than 1 percent next year.

Economists say cleaning up Europe's banks, which are weighed down with bad loans and loath to lend, could also help to put the economy on firmer footing.

The European Central Bank last month said it would seek to encourage lending to southern Europe by making it easier for banks to use certain securities as collateral.

In addition to the problems on the periphery, any acceleration to pre-crisis growth levels will require that ailing "core" countries like France, Belgium, Finland and the Netherlands address worrying competitiveness deficits, Mr. Solveen added.

Jonathan Loynes, an economist in London with Capital Economics, said the fact that households in Germany and France helped to drive the rebound "suggests that the recent period of relative calmness in the eurozone is encouraging core consumers to spend money and might raise hopes of a narrowing of the economic imbalances within the currency union."

Still, Mr. Loynes wrote in a research note, the weaker European economies, particularly those hurt by the sovereign debt crisis, "remain a very long way from the rates of expansion required to address their deep-seated problems of mass unemployment and cripplingly high debt."

"The recession may be over," he added, "but the debt crisis is decidedly not."

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