Eurozone breaks chains of recession, still drags debt

14th August 2013, Comments 0 comments

The eurozone escaped a crippling 18-month recession which has cost millions of jobs and tested the single currency to the limit, pulled on Wednesday by surprisingly robust growth in Germany and France.

But the European Commission warned that tough structural reforms, including unpopular austerity policies, must be pursued without let-up if the recovery is to last.

The data, widely anticipated, left stocks unimpressed and the euro weaker.

The 17-country eurozone, home to about 340 million people, grew 0.3 percent in the three months to June, topping analyst forecasts for 0.2 percent.

In the first quarter, the economy had shrunk 0.3 percent, extending the recession -- defined as two consecutive negative reports -- into a record sixth quarter.

Behind the headline gains, other figures showed how much ground still needs to be made up -- the eurozone contracted 0.7 percent compared with second quarter of 2012, the Eurostat statistics agency said.

"There is still a very long way to go before we reach our ultimate goal of sustainable growth model that delivers more jobs," said EU Economic Affairs Commissioner Olli Rehn."

"A sustained recovery is now within reach but only if we persevere on all fronts of our crisis response," Rehn said.

Eurozone states must "keep up the pace of economic reform, regain control over our mountain of debt ... and build the pillars of a genuine economic and monetary union with no loopholes where irresponsible bankers or short-sighted policy makers can thrive," he warned.

Such comments may be welcome in Germany, which faces polls in September, as Chancellor Angela Merkel has made a virtue out of the need for austerity as an essential foundation for a return to growth.

Germany, Europe's powerhouse economy, grew 0.7 percent, while France expanded 0.5 percent, way ahead of forecasts for just 0.2 percent.

The French figures were the best since first quarter 2011 and significant given how the eurozone's second-ranked economy has struggled for momentum, burdened with heavy debt and an increasingly uncompetitive export sector.

Analysts were positive but also cautious -- the eurozone may be returning to growth but its performance is anaemic compared with other major economies and the debt crisis refuses to go away.

Unemployment too remains at record high levels.

Jonathan Loynes of Capital Economics said Germany's gain of 0.7 percent was slightly stronger than expected and France surprised too but he noted that the Netherlands fell 0.2 percent while Spain and Italy continued weak.

The "indebted countries of the periphery are still mainly in recession and a very long way from the rates of expansion needed even to begin to eat into their enormous debt burdens," Loynes noted.

"The eurozone's recession may be over -- for now at least -- but the debt crisis in the periphery is decidedly not," he said.

Berenberg Bank economist Christian Schulz was equally guarded.

"The eurozone's two heavy-weights bounced back with substantial growth in the second quarter," Schulz said.

"Their growth, in combination with the much milder recession in the crisis countries, has dragged the eurozone out of recession since Easter."

In both Germany and France, growth was driven by domestic demand, while trade was buoyant but probably broadly neutral for overall growth, he said.

But Schulz noted that while investment made a return in Germany, "it remained elusive in France, suggesting that France's bounce-back does not signal a return to persistent strong growth yet."

Other figures showed that the full 27-member EU grew 0.3 percent in the second quarter compared with the first when it shrank 0.1 percent.

Among non-euro members, Britain grew 0.6 percent, confirming recent stronger indicators.

Comparable figures for the United States and Japan came in at 0.4 percent and 0.6 percent, respectively.

© 2013 AFP

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