Germany Leads Eurozone out of recession

Germany leads eurozone out of recession

November 13, 2009 --
European policymakers are concerned rising unemployment and a strengthening euro will act as brake on growth.
European policymakers are concerned rising unemployment and a strengthening euro will act as brake on growth.
STORY HIGHLIGHTS

* Eurozone gross domestic product rises by 0.4 percent in third quarter
* German economy grows by 0.7 percent; French economy only by 0.3 percent
* Analysts say rebound less dramatic than expected, slower than in U.S.


Frankfurt, Germany/Paris, France -- The eurozone escaped recession in the third quarter, with Germany's recovery gaining strength, but the rebound was less dramatic than expected and less strong than in the US.

Eurozone gross domestic product rose by 0.4 per cent compared with the previous three months, according to Eurostat, the European Union's statistical office. The US economy expanded by 0.9 per cent in the same period but the UK remained in recession.

The latest data followed five consecutive quarters of falling eurozone GDP. Powering the rebound was a 0.7 per cent expansion in Germany's economy, the 16-country region's largest. Italy also performed well, expanding by 0.6 per cent, ending its recession. But the 0.3 per cent pick-up in France -- the same as in the previous quarter -- fell short of expectations.

Hopes of a stronger rebound had been boosted by a robust revival in eurozone industrial output, which has become closely linked to the region's fortunes during the global financial crisis.

Exports and investments appeared to have powered German growth, making up for a fall in consumer spending as the effects of the government's temporary cash-for-clunkers car purchase incentive scheme wore off.

France's relatively weak performance, however, surprised analysts because purchasing managers' indices had suggested its economy was performing better than Germany's.

The main surprise in the French growth figures was the zero growth of consumption after steady, if slight, increases throughout the crisis and in spite of continued government subsidies for the purchase of new cars.

Although the growth figure for France came in below expectations, economists took cheer from data showing a sharp slowdown in job losses. According to Insee, the national statistical agency, there were only 5,500 net job losses in the third quarter, following 271,000 in the first half of the year.

"This indicates that the unemployment rate will probably stabilise during the first half of 2010, thereby paving the way for a more evenly balanced recovery," said Alexander Law, chief economist at Paris-based consultants Xerfi.

European policymakers, meanwhile, are concerned that continental Europe's economic recovery will remain weak, with rising unemployment and a strengthening euro acting as a brake on growth.

Much of the recent recovery appears to have been driven by emergency stimulus measures and less aggressive de-stocking -- factors that could fade in coming months. "The euro area may have technically exited recession -- but the economy is definitely not out of the woods yet," said Colin Ellis, European economist at Daiwa Securities SMBC.

The eurozone economy fared worse than that of the US after the failure of Lehman Brothers late last year, with the collapse of global economic confidence hitting its exports. But France and Germany both emerged from recession earlier.

Germany's statistical office revised up the country's second-quarter growth rate from 0.3 per cent to 0.4 per cent. The 0.7 per cent rise in the third quarter was the strongest since early 2008.

Commenting on the latest figures, Germany's statistical office said growth had been boosted by construction and investment in machinery and equipment. Stronger imports, meanwhile, led to a build-up in inventories. However, private consumption "was down and slowed economic growth", the office said.