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Business

Europe emerges from recession, but questions remain about sustainability

Text by News Wires

Latest update : 2009-11-13

Both the eurozone and the European Union saw growth in the third quarter. According to Eurostat, the eurozone posted growth of 0.4% and the EU grew by 0.2%. The British and Spanish economies remain in the red.

AFP - Europe's deepest recession since World War II officially ended on Friday when the world's biggest trading bloc joined Japan and the United States in returning to growth.

Both the 16-nation eurozone and the 27-nation European Union as a whole, home to half a billion people, posted economic expansion -- of 0.4 percent in the single currency area and 0.2 for the whole EU in the third quarter.

But after five quarters of shrinking output in a row, 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 is 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.

The question for political leaders is whether and when the withdrawal of massive state support for economic rebuilding works can take place without derailing a recovery struggling with high and rising unemployment.

Growth of 0.7 percent in Germany, Europe's most powerful economy, and 0.3 percent in France lay behind the upturn.

Both had already emerged from the recessionary shadows in the spring, but Germany's acceleration was pinned on a combination of exports, investment and construction -- although "the weakness of consumption is a bit worrisome," said Goldman Sachs economist Dirk Schumacher.

The eurozone economy had shrunk by 0.2 percent between April and June after a record collapse of 2.5 percent in the previous quarter.

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

The European figures compare with a 0.9 percent improvement in US economic output.

Japan already exited from recession in the second quarter with 0.6 percent growth.

Chief IHS Global Insight economist Howard Archer poured more cold water on the news when he said growth came "at a trot rather than a canter."

In the same period of 2008, the economy across Europe shrank by more than 4.1 percent.

Cautioning that "consumer spending likely saw little or no growth," Archer warned that the recovery "could well lose momentum for a time in 2010."

But he tipped overall eurozone growth of one percent next year.

Clemente De Lucia of BNP-Paribas said the rebound was due mainly to the industrial sector and warned that it "might fade next year" once 'cash-for-clunkers' schemes to boost new car sales are fully withdrawn.

He also pointed to high unemployment, running at more than 22 million across the EU, acting as a brake on expansion -- as well as a weak dollar boosting exports from global competitors.

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

Brussels released figures drawing on input from 17 EU countries, with 10 showing third-quarter growth and seven not.

Among other leading nations, Italy, which has long laboured under a massive public debt, experienced growth of 0.6 percent -- after six consecutive quarters of shrinking output.

The Netherlands also posted 0.4 percent growth.

The main player in eastern Europe, Poland -- which had already shown expansion of 0.7 percent in the second quarter -- has yet to release its figures.

A spokeswoman for the EU's commissioner for economic affairs said there would likely be only "gradual" improvement through until 2011, ahead of fuller details due on December 3.

Earlier this month, the commission forecast growth in the eurozone of 0.7 percent in 2010 and 1.5 percent in 2011.

But it also said that unemployment would climb to rates of 10.7 and 10.9 percent respectively.

Date created : 2009-11-13

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