Germany, France escape recession unexpectedly

13th August 2009, Comments 0 comments

Official initial estimates show the French and German economies grew 0.3 percent in the second quarter of 2009.

Brussels – Germany and France unexpectedly emerged from recession on Thursday while the 16-nation eurozone economy shrank by just 0.1 percent in the second quarter in new signs that a recovery is taking shape.

A day after the Federal Reserve said the recession-hit US economy was stabilising, official initial estimates showed Germany and France both achieved growth of 0.3-percent in the second quarter of 2009.

The news was particularly welcome for German Chancellor Angela Merkel ahead of polls in September as Europe's biggest economy had not seen positive growth since the first quarter of 2008. Analysts had forecast a 0.2-percent drop.

The figures from France were equally unexpected as the national statistics office INSEE had forecast a 0.6-percent contraction for the quarter.

"We have come back to positive growth," said Finance Minister Christine Lagarde, welcoming what she described as "extremely surprising" figures.

France had also been in recession for the last 18 months and its economy contracted by 1.2 percent in the first quarter.

Recession is widely understood to be a run of two quarters or more of contracting output in a row.

But Lagarde tempered the sense of growing optimism by warning the outlook for unemployment would "remain difficult". The economy ministry had forecast in June that private sector job losses could reach 591,000 this year.

The results from Berlin and Paris came ahead of the release in Brussels of second-quarter growth figures for the eurozone which showed an overall contraction of 0.1 percent.

The stronger-than-expected performances from the zone's two biggest hitters helped confound expectations that the bloc would see a 0.4-percent drop in GDP.

European Central Bank chief economist Juergen Stark said growth in the eurozone could return sooner than expected.

"There are indeed some signs of stabilisation of economic activity at the moment," Stark told the business newspaper Boersen Zeitung. "They indicate that positive growth could be expected sooner than forecast."

However Stark warned against premature optimism.

"What we are seeing is based primarily on stimulus measure by the governments and the re-stocking of warehouses. Seen in that light, we cannot count on a durable return to a growth course."

Marc Touati, a Paris-based analyst for Global Equities, also warned there could be more "negative" surprises ahead as the euro strengthens, interest rates creep back up and the impact of stimulus measures wears off.

"The really good news in this lies in the fact that, contrary to consensus forecasts going back a few weeks, a catastrophe along the lines of the 1930s Great Depression has been avoided," he said.

Figures elsewhere in Europe showed many countries still firmly in the grip of recession.

For example, Austria's economy slowed further in the second quarter of the year while Slovakia's economy contracted by 5.3 percent on a 12-month basis.

The Dutch economy meanwhile exceeded its previous longest period of recession by shrinking 0.9 percent in the second quarter.

Britain, which is outside the eurozone, released figures Wednesday showing its economy shrank by 0.8 percent while unemployment hit a 14-year high.

Europe's main stock markets all rose following the results from Germany and France.

London's benchmark FTSE 100 index rose 1.11 percent in morning trade while Frankfurt's DAX 30 gained 1.42 percent and in Paris the CAC 40 added 0.97 percent.

The rises followed a rally in US stocks, buoyed by comments from the Federal Reserve that the economy is stabilising as it announced a scale back in its massive pump-priming effort.

Joel Naroff, an analyst at Naroff Economic Advisors said a Fed statement saying the economy was "levelling out," replacing a June phrase that "the pace of economic contraction is slowing," was significant.

The change "indicates to me the members believe the recession is basically over," Naroff said.

AFP / Expatica

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