Germany, France exit recession

August 14, 2009 04:30:14 PM

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Germany and France unexpectedly emerged from recession on Thursday while the 16-nation eurozone economy shrank by just 0.1 percent in the second quarter in new signs that a recovery is taking shape.

A day after the Federal Reserve said the recession-hit US economy was stabilising, official initial estimates showed that Germany and France both achieved growth of 0.3 percent in the second quarter of 2009.

The news was particularly welcome for German Chancellor Angela Merkel ahead of polls next month as Europe's biggest economy had not seen positive growth since the first quarter of 2008. Analysts had forecast a 0.2 percent drop.

The figures from France were equally unexpected as the national statistics office INSEE had forecast a 0.6 percent contraction.

"We have come back to positive growth," said Finance Minister Christine Lagarde, welcoming what she described as "extremely surprising" figures.

But Lagarde warned the outlook for unemployment would "remain difficult," with her ministry saying private sector job losses could reach 591,000 in 2009.

Also on Thursday Brussels released second-quarter growth figures for the eurozone which showed an overall contraction of 0.1 percent.

The stronger-than-expected performance from the zone's two biggest hitters helped confound expectations that the bloc would see a 0.4-percent drop in GDP.

European Central Bank chief economist Juergen Stark said that growth in the eurozone could return sooner than expected.

But he too warned against premature optimism.

"What we are seeing is based primarily on stimulus measure by the governments and the re-stocking of warehouses. Seen in that light, we cannot count on a durable return to a growth course."

Marc Touati, a Paris-based analyst for Global Equities, also warned there could be more "negative" surprises ahead as the euro strengthens, interest rates creep back up and the impact of stimulus measures wears off.

"The really good news in this lies in the fact that, contrary to consensus forecasts going back a few weeks, a catastrophe along the lines of the 1930s Great Depression has been avoided," he said.

Figures elsewhere in Europe showed many countries still firmly in the grip of recession, such as Slovakia, whose economy contracted by 5.3 percent on a 12-month basis, or the Netherlands, now in its longest-ever recession.

"The (eurozone) 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.

Britain, which is outside the eurozone, released figures on Wednesday showing its economy shrank 0.8 percent while unemployment hit a 14-year high.

But Business Secretary Peter Mandelson, a former EU trade commissioner, said that recovery on the continent was also "good news for us here in Britain."

"If they are now recovering this is good news for our manufacturers, our exports, because it will mean more orders for our companies in Britain," he said.

"Actually the recession and the economic contraction that happened in Germany was worse, it started earlier and it went to a lower depth than it did in Britain and I am very pleased and encouraged that Germany is making the recovery that it is."

Europe's main stock markets all rose following the results from Germany and France.

London's benchmark FTSE 100 index rose 1.11 percent in morning trade while Frankfurt's DAX 30 gained 1.42 percent and in Paris the CAC 40 added 0.97 percent.

The rises followed a rally in US stocks, after a Fed statement said that the US economy was "levelling out."

US analyst Joel Naroff interpreted its change of tone to mean that Fed members "believe the recession is basically over."