Europe crawls out of recession

(BRUSSELS) - Europe shook off recession Friday but analysts warned that unemployment would remain a major problem as countries recover from the deepest downturn since World War II.

While the world's biggest trading bloc joined Japan and the United States in returning to growth, the level was lower than expected.

The 16 nations which use the euro and the wider 27-nation European Union, home to half a billion people, posted expansion in the third quarter -- 0.4 percent in the eurozone area and 0.2 percent for the whole EU.

But after five straight quarters of shrinking, the fact that key pillar Britain still lags behind -- with a 0.4 percent contraction -- underlined the fragility of recovery.

Analysts, who had forecast eurozone growth of 0.6 percent when polled by DowJones Newswires, said the improvement was unlikely to be robust enough to change broad economic policy lines.

"Today's data can be considered a disappointment," warned Aurelio Maccario of UniCredit Group.

"We had been hoping for a somewhat stronger print of 0.9 percent, which would have put euro area growth on a par with the US," added Elga Bartsch of Morgan Stanley.

On the currency market the euro moved higher against the dollar after the report, trading late in the session at 1.4918 dollars against 1.4845 late Thursday in New York.

"Overall eurozone growth at 0.4 percent was weaker than expected although it confirms that the region moved out of recession in the period," said analyst Jane Foley at online trading site Forex.com

"The message is that the recovery has begun, but the upswing will be a moderate and gradual affair as domestic demand will remain lacklustre," added Fortis economist Nick Kounis.

The question for political leaders is whether and when massive state support for economic rebuilding can be withdrawn without derailing a recovery labouring under high and rising unemployment.

Growth of 0.7 percent in Germany, Europe's biggest economy, and a downbeat 0.3 percent in France -- the same as for the second quarter -- was ultimately enough to trigger the upturn.

Germany's acceleration was down to exports, investment and construction -- although weak consumption was "worrisome", said Goldman Sachs economist Dirk Schumacher.

The eurozone economy shrank by 0.2 percent between April and June after a record collapse of 2.5 percent in the previous three months.

However, Britain's results and Spain, with a 0.3 percent decline, pulled the EU data agency Eurostat's figures down.

Greece, which had previously said it escaped recession at the turn of the year, went back on its past figures and said it had recorded negative growth for all of this year.

Japan exited recession in the second quarter with 0.6 percent growth, before the US leapt ahead between July and September.

Chief IHS Global Insight economist Howard Archer said EU growth came "at a trot rather than a canter."

He warned that the recovery "could well lose momentum for a time in 2010" and tipped overall eurozone growth of one percent next year.

Clemente De Lucia of BNP-Paribas said the rebound was due mainly to industry and 'cash-for-clunkers' schemes to boost new car sales.

He also pointed to high unemployment, running at more than 22 million across the EU, acting as a brake on expansion in combination with a weak dollar that penalises European exports.

Nervous consumers meanwhile fear a double-whammy of higher repayments on loans and rising prices when an avalanche of EU economic support is scaled back.

The figures drew on input from 17 EU countries, of which 10 showed third-quarter growth.

Italy, which has long laboured under a massive public debt, saw growth of 0.6 percent after six consecutive quarters of shrinking output.

The Netherlands also posted 0.4 percent expansion.

In eastern Europe, Poland, which had already logged 0.7 percent growth in the second quarter, has yet to release its figures.

An EU commission spokeswoman said meanwhile there would likely be only "gradual" improvement until 2011.

The bloc's budgetary watchdog forecasts eurozone growth of 0.7 percent in 2010 and 1.5 percent in 2011.

But it also sees unemployment climbing to 10.7 and 10.9 percent respectively.

Further details - Eurostat