News Column

Eurozone Economy Exits Recession

August 14, 2013

Andrew McCathie


The eurozone pulled out of its longest-ever recession in the second quarter, powered ahead by a stronger-than-forecast pickup up in the region's two biggest economies - Germany and France.

The 17-member eurozone economy grew by 0.3 per cent in the three months to June after six consecutive quarters of contraction, the European Union's statistics office Eurostat said on Wednesday.

This beat the forecasts of analysts, who had been expecting the currency bloc to expand by a slightly more modest 0.2 per cent.

However, four eurozone states remain stuck in recession as their governments attempt to patch up state finances against the backdrop of fiscal austerity and high unemployment.

Both economists and the EU commission have warned that the region still faces an uphill battle to emerge from the long-running debt crisis.

"Overall, while the return to economic growth in the eurozone is a welcome development, it would be wrong to think that it will bring an end to the travails of the highly indebted and uncompetitive countries of the periphery," said Jonathan Loynes, chief European economist with the Capital Economics research group.

Echoing his remarks, EU Economy Commissioner Olli Rehn wrote on his blog: "I hope there will be no premature, self-congratulatory statements suggesting that the crisis is over.

"There is still a very long way to go before we reach our ultimate goal of a sustainable growth model that delivers more jobs," Rehn added.

The currency bloc also faces the threat of the debt crisis suddenly resurging amid speculation that cash-strapped Greece might require additional aid.

In addition, unemployment in the eurozone currently stands at more than 12 per cent, which is likely to continue to act as a brake on consumer spending.

For the year as a whole, economists still expect the eurozone economy to contract.

The European Central Bank expects the eurozone economy to shrink by 0.6 per cent this year, before growing by 1.1 per cent in 2014.

Still, the Eurostat data confirmed that the downturn was easing in several so-called periphery countries that have been at the centre of the financial meltdown in the eurozone, including Spain, Italy and Greece.

Portugal bounded out of recession to grow by a solid 1.1 per cent in the second quarter.

But the downturn continued to grind on in the Netherlands, which is one of the eurozone's core members.

The nation's gross domestic product (GDP) slumped by 0.2 per cent in the three months ending in June, Eurostat said.

Further underlying the fragile state of the eurozone economy, the region's GDP shrunk by 0.7 per cent in the three months ended June, compared with the same period in 2012.

Eurostat also revised downwards the eurozone's first quarter GDP data to show a quarter-on-quarter contraction of 0.3 per cent, compared with a previous estimate of a 0.2-per-cent slump.

The GDP figures also showed Germany re-emerging as the region's economic locomotive.

The German economy expanded by 0.7 per cent quarter-on-quarter in the second quarter - higher than the 0.6 per cent predicted by economists.

Germany now has the fastest growing economy among the Group of Seven leading industrial states, after it recovered from stagnation during the first quarter.

At the same time, France pulled out of recession to chalk up a surprisingly strong 0.5 per cent growth rate.

The broader EU economy also grew by 0.3 per cent in the second quarter, following a 0.1 per cent contraction in the period from January to March.

The EU's membership expanded to 28 last month when Croatia joined the bloc.

Source: Copyright 2013 dpa Deutsche Presse-Agentur GmbH. Distributed by MCT Information Services

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