Eurozone economy rallies to shrink just 0.1 pct in quarter
Eurozone
(BRUSSELS) - The eurozone economy contracted by just 0.1 percent in the second quarter, as Germany and France unexpectedly emerged from recession, official EU data showed on Thursday.
The figures, which are initial estimates, fuelled hopes that the eurozone's biggest hitters can pull the others out of the worst recession the region has known since 1945, although analysts said the data should be treated with caution.
"The economy is still contracting (but) the situation is much better than we expected in the spring," European Commission spokesman Ton Van Lierop told reporters in Bussels.
"The sharpest contractions in activity seem to be behind us," he added.
Germany, the biggest eurozone economy, and France both surprised on Thursday with growth of 0.3 percent in the second quarter, confounding official forecasts of continued contraction.
This switch means that they have broken a run of shrinking and have broken out of recession.
The latest eurozone figures, from the official Eurostat statistics agency, mark the fifth quarter running of shrinking gross domestic product for the eurozone as a whole.
However the second-quarter rate of contraction provides a much sunnier outlook than the record GDP plunge of 2.5 percent witnessed in the first quarter during the worst throes of the economic downturn.
European Central Bank chief economist Juergen Stark said economic growth may return sooner than expected in the eurozone but cautioned that "what we are seeing is based primarily on stimulus measures by the governments and the re-stocking of warehouses.
"Seen in that light, we cannot count on a durable return to a growth course."
By contrast, in France the national statistics agency said that the upturn there was not driven by re-stocking by industry.
Analysts are studying the latest data in fine detail to understand why there was a big difference between the growth outcome in France and Germany, and forecasts for continuing contraction.
The European Commission and the International Monetary Fund have been talking about seeing a modest bounce back some time next year.
Analysts in France said that although the French figures were a welcome surprise, a breakdown of where the growth was coming from suggested the recovery was fragile.
Natixis economist Costa Brunner, focusing on the German figures, said they hid another major problem.
"This data is pleasant news but it is bought dearly through the German and worldwide stimulus packages... A setback is very likely to occur in the course of 2010," she commented.
Martin Lueck of UBS Investment Research had no qualms in hailing that "recession is over in Germany".
The figures were certainly a surprise for most economists, with those polled by Dow Jones Newswires having predicted a 0.4 percent GDP drop for the eurozone.
The economy in the 27-nation European Union as a whole shrank by 0.3 percent in the second quarter, weighed down in part by a 0.8 percent drop in Britain.
However these figures too were markedly better than 2.4 percent falls seen in the first quarter.
On an annual basis, GDP was still well down in the second quarter, by 4.6 percent in the eurozone and 4.8 percent in the EU as a whole.
Also bouncing out of recession in the second quarter, according to Eurostat, were Greece (0.3 percent rise in GDP), Portugal (0.3 percent) Slovakia (2.2 percent) and, just about, Sweden which saw zero growth.
Of the 27 EU nations only Lithuania posted a worse GDP loss in the second quarter compare to the first, with double digit contraction.
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