Demand in emerging markets powers European recovery

(PARIS) - The German economy is striding into recovery, pulled by its formidable export machine and diverging from France which is struggling with a trade deficit, latest data shows while small Europe countries jostle for recovery on the sidelines.

Analysts say momentum in Europe is being powered by strong demand for imports in emerging markets, notably Asia, with Germany particularly well-placed to cash in.

But there is also concern in some European countries that Germany, Europe's largest economy, is not doing enough to stimulate domestic demand.

Germany's national statistics office reported Wednesday that wages have risen less in Germany in the past 10 years than anywhere else in the European Union.

Wage moderation has helped Germany remain Europe's powerhouse and has contributed to strong growth seen in the first half of 2010.

But less competitive countries such as France complain that German wage constraint undermines consumption -- and by extension imports -- and say Germany relies too heavily on exports to keep its economic engine humming along.

German exports rose by 18.7 percent compared to July 2009, the statistics office said. But imports also rose sharply, registering a 24.9-percent gain on the previous year.

Strong German data contrasted with a gloomier outlook in France, which reported a trade balance showing an increased deficit in July of 4.180 billion euros (5.3 billion dollars) from 3.718 billion euros in June.

French exports to the other countries in the European Union increased but exports to Asia and North America slipped.

In the Nordic region, recovery in export-reliant Sweden and Finland from a deep recession gathered pace, spurred by a turnaround in manufacturing and exports plus strong fundamentals such as healthy public finances and strong consumption.

In Sweden, growth accelerated in the second quarter by 4.6 percent on a 12-month comparison, and by 1.9 percent compared to output in the previous quarter.

In Finland, gross domestic product swelled by 1.9 percent in the second quarter, with the economy growing by 3.7 percent year-on-year.

Across eastern Europe the picture was mixed.

The Czech economy grew by a seasonally-adjusted 0.9 percent between the first and second quarter of 2010, and year-on-year GDP grew by an adjusted 2.4 percent in the second quarter on a pick-up in the manufacturing industry.

The recovery continued in Baltic tiger Estonia, with the government reporting second quarter growth of 1.9 percent following 1.1 percent growth in the first quarter.

"Gross domestic product was influenced both by weak domestic demand and by improved external demand and the growth in exports resulting from that," said Tonu Mertsina, head of the office's national accounts service.

Estonia's economy shrank by 3.6 percent in 2008 after having grown by 7.2 percent in 2007 and 10.0 percent in 2006.

Other European economies -- notably Bulgaria, Hungary and Greece -- continued to struggle.

Bulgaria remained in recession, with GDP contracting for the sixth quarter running.

GDP declined by 1.4 percent from output 12 months earlier, the national statistics institute said, after the economy had already shrunk by 3.6 percent on a 12-month basis in the first three months of 2010.

Hungary's economy stagnated in the second quarter of 2010, making it one of the worst-performing economies in the 27-nation EU.

In Greece, the economy shrank by 1.8 percent in the second quarter from output in the first three months of 2010 and by 3.7 percent on a 12-month comparison, confirming fears the economy is gripped by deepening recession as it battles an unprecedented debt crisis.