This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.nytimes.com/2013/08/15/business/global/euro-zone-economy-grew-0-3-in-2nd-quarter-ending-recession.html

The article has changed 5 times. There is an RSS feed of changes available.

Version 3 Version 4
Euro Zone Economy Grew 0.3% in 2nd Quarter, Ending Recession Euro Zone’s Recession Ends, at Least for Now
(about 12 hours later)
PARIS — Europe broke out of recession in the second quarter of the year, official data showed Wednesday, amid stronger domestic demand in France and Germany, ending a six-quarter downturn that has sapped confidence and thrown millions of people out of work. PARIS — Bolstered by stronger consumption and investment in Germany as well as growth in France, Europe broke out of recession in the second quarter, ending its longest postwar contraction, official data showed on Wednesday. But the weak upturn, high unemployment and other problems on the Continent left open the question of whether the nascent recovery can last.
The gross domestic product of the 17-nation euro zone grew by 0.3 percent in the April-June period from the previous three months, when the economy contracted by 0.3 percent, according to a report from Eurostat, the statistical agency of the European Union. That was slightly better than the 0.2 percent growth economists had been expecting. The two biggest economies in the 17-nation euro zone each helped pull the region as a whole out of its doldrums, with Germany posting 2.8 percent annualized growth in the second quarter and France 2.0 percent. Over all, gross domestic product in the zone grew 1.2 percent, according to Eurostat, the official statistics office of the European Union. The second quarter’s growth slightly exceeded the 0.8 percent growth forecast by economists.
On an annualized basis, the euro zone grew by about 1.2 percent in the second quarter, short of the 1.7 percent second-quarter showing by the United States and 2.6 percent in Japan, but nonetheless a relief to the Continent, which has weathered an unemployment rate that has risen to 12.1 percent and a sovereign debt crisis that raised existential questions about the euro. The euro zone’s growth fell short of the 1.7 percent second-quarter showing by the United States and 2.6 percent in Japan.
“It’s not the end of the problems,” Ralph Solveen, an economist at Commerzbank in Frankfurt, said. “But the technical recession is over.” But even modest growth is a relief in a region where unemployment has risen to 12.1 percent and there are still fears of a new debt crisis and existential questions about the euro.
The economy of the European Union as a whole, which consists of 28 nations, also grew by 0.3 percent in the second quarter. The meager growth rate will not make a serious dent in the problems of the 26 million people Eurostat says cannot find work, said Ralph Solveen, an economist at Commerzbank in Frankfurt.
Germany grew by 0.7 percent, after stagnating in the first quarter. The gains were led by demand from households and government, the Federal Statistical Office reported from Wiesbaden, while exports and investment also rose. The news bolsters Chancellor Angela Merkel as her coalition government prepares for September elections. “I wouldn’t look for a significant reduction in unemployment in the next year,” he said. “At best, we can hope for a stabilization of the job market.”
France, which had declined for the two previous quarters, posted 0.5 percent quarterly growth, as household spending grew and companies increased exports of goods and services, though investment declined slightly. Pierre Moscovici, the French finance minister, noted that it was the best showing since the first quarter of 2011, before President François Hollande took office, and hailed the result as justifying the government’s economic policies. The fact that households in Germany and France helped to drive the rebound “suggests that the recent period of relative calmness in the euro zone is encouraging core consumers to spend money and might raise hopes of a narrowing of the economic imbalances within the currency union,” said Jonathan Loynes, an economist in London with Capital Economics.
Portugal, racked by austerity-induced recession and the recipient of a bailout from the troika of the European Commission, European Central Bank and International Monetary Fund, was the biggest surprise in the data. The economy there expanded by a robust 1.1 percent in the quarter, far above expectations that it would do little better than break even, and the fastest growth of any European Union member. A surprisingly strong showing came from Portugal, where the economy grew 4.4 percent in the second quarter, the highest rate in the 28-nation European Union. The return to growth after two years of deep recession was hailed by the center-right government in Lisbon as proof that austerity policies, imposed in return for a bailout of 78 billion euros ($104 billion) negotiated in May 2011, were finally bearing fruit.
Spain’s economy shrank by just 0.1 percent, improving from a 0.5 percent decline in the first quarter. The economy of tiny Cyprus, still reeling from the collapse of its banks and the troika’s remedy, shrank 1.4 percent, the worst showing of any E.U. member but a modest improvement from the 1.7 percent first-quarter decline. Besides Portugal, there were signs of life elsewhere in the battered “periphery” of the euro zone. Spain’s economy shrank by 0.4 percent, improving on a 2.0 percent slide in the first quarter.
Mr. Solveen said external demand had helped the so-called “periphery” of the euro zone, those countries like Portugal, Spain, Italy and Ireland that have been among the hardest hit by the sovereign debt crisis and the hangover from the boom years. Recent data suggest Spain could be out of recession by the third quarter, he said. The economy of Cyprus, still reeling from the collapse of its banks and the troika’s remedy, shrank 5.6 percent at an annualized rate, the worst showing of any union member but a modest improvement from its 6.8 percent first-quarter decline. Even the hapless Greek economy, which has suffered 20 consecutive quarters of decline, got a small glimmer of hope with signs that the pace of contraction is slowing.
But that very reliance on the outside world means the nascent recovery is at the mercy of growth in the United States and Asia, he said, adding that apart from Germany, “I wouldn’t expect to see strong growth at least for the next year.” Economists say that cleaning up bad loans at Europe’s banks and getting them to lend again would help the economy gain firmer footing. Politicians are not expected to act until after Germany’s elections. The European Central Bank said last month that it would seek to encourage lending to Southern Europe by making it easier for banks to use certain securities as collateral.
The outlook now, Mr. Solveen said, is for Europe to continue limping along for the next few quarters, with a small full-year contraction likely in 2013, followed by growth of less than 1 percent next year. Still, Mr. Loynes wrote, the weaker European economies “remain a very long way from the rates of expansion required to address their deep-seated problems of mass unemployment and cripplingly high debt.”
Economists say cleaning up Europe’s banks, which are weighed down with bad loans and loath to lend, could also help to put the economy on firmer footing. The E.C.B. last month said it would seek to encourage lending to southern Europe by making it easier for banks to use certain securities as collateral. “The recession may be over,” he added, “but the debt crisis is decidedly not.’”
In addition to the problems on the periphery, any acceleration to pre-crisis growth levels will require that ailing “core” countries like France, Belgium, Finland and the Netherlands address worrying competitiveness deficits, Mr. Solveen added. In the August vacation season, with much of Europe preparing for a long holiday weekend, politicians were generally muted in their reaction to the G.D.P. report. Officials said that there was no reason for complacency, but added that they saw some chance at longer-term growth.
Jonathan Loynes, an economist in London with Capital Economics, said the fact that households in Germany and France helped to drive the rebound “suggests that the recent period of relative calmness in the euro zone is encouraging core consumers to spend money and might raise hopes of a narrowing of the economic imbalances within the currency union.” Chancellor Angela Merkel of Germany, who is seeking a third term in Sept. 22 elections, had no immediate comment. But her economics minister, Philipp Rösler, wasted no time in proclaiming that “there is every reason for people in Germany to look optimistically into the future.” Ms. Merkel has been the main proponent of structural reform in the weaker economies of Southern Europe. But neither economists nor politicians used Wednesday’s figures to proclaim a victory for pro- or anti-austerity camps.
Still, Mr. Loynes wrote in a research note, the weaker European economies, particularly those hurt by the sovereign debt crisis, “remain a very long way from the rates of expansion required to address their deep-seated problems of mass unemployment and cripplingly high debt.” “It’s a very good sign that we are not declining into a longer recession,” said Jürgen Matthes, senior economist at the Cologne Institute for Economic Research. But, he added, “We can only really say what is successful when the numbers prove it.”
‘'The recession may be over,'’ he added, “'but the debt crisis is decidedly not.” As for an election benefit for Ms. Merkel, he noted: “ ‘It’s the economy, stupid’ holds true everywhere. These numbers are not a decisive factor — but they help.”

This article has been revised to reflect the following correction:

Germany’s federal statistics office and several analysts attributed the boom in Germany to stronger consumption, investment and activity in the construction industry after a severe winter. From January through the end of March, the euro zone economy over all contracted 1.2 percent, according to Eurostat.
Investor reaction to the G.D.P. figures was understated in Europe, where stocks and the euro barely budged.
The expansion of the region’s economy had been foreshadowed by recent indicators showing that factories have been increasing output and consumers and businesses were gaining confidence.
“You can see that things have gotten better in Europe because foreigners are coming and spending more money,” said Irene Sassi, an assistant in a souvenir store in downtown Siena, Italy. “But Italians are still coming in smaller numbers than they used to, and they buy food and drinks, not contrada flags or scarves. In our pockets, the situation has not improved recently, that I can tell you.”
France, whose economy declined in the two previous quarters, saw household spending grow and companies increase exports of goods and services, though investment declined slightly.
The French government was quick to welcome the news and to take credit for the stronger-than-expected growth, which came after several less optimistic economic assessments from both the International Monetary Fund and Insee, the French statistics agency.
President François Hollande refrained from making a statement, but both his finance minister, Pierre Moscovici, and his prime minister, Jean-Marc Ayrault, were quick to interpret the growth in G.D.P. as an endorsement of the government’s strategy to bring down the deficit, which was 4.8 percent of G.D.P. last year, to meet the European Union target of 3 percent. The strategy has included raising taxes and a labor deal aimed at encouraging employment.
Mr. Moscovici said in a statement that the growth “results at once from an improvement in the European economic context and from a firming up of interior demand.”
Mr. Moscovici, who just days ago predicted that there would be no growth this year, sounded pleasantly surprised, noting that the volume of French exports had increased 2 percent and that consumer spending rose 0.4 percent. Opposition politicians said they were pleased to see growth, but warned against reading too much into the number. “I see this number as a technical correction that does not erase the general sluggishness of the French economy,” said Luc Chatel, a member of the French Parliament and a former government minister from the center-right Union for a Popular Movement party.
Economists were more cautious, arguing that structural changes are needed in France for a lasting economic turnaround. The government is considering changes in the pension program as well as other measures to encourage job creation, but has not yet taken the steps needed to enact them, they said.
“We don’t know if this kind of recovery from quarter to quarter will last,” said Jean-Paul Fitoussi, an economics professor at the Institute of Political Studies at the Sorbonne, adding that since he had seen no new “engine of growth’” the improvement was surprising.
“I don’t yet see any strong policies at work to get out of the present situation,” he said.

David Jolly reported from Paris, and Alison Smale from Berlin. Alissa J. Rubin and Scott Sayare contributed reporting from Paris, and Gaia Pianigiani from Siena, Italy.

This article has been revised to reflect the following correction:
Correction: August 14, 2013Correction: August 14, 2013

An earlier version of this article misstated the rate of decline in Cyprus’s economy. Its gross domestic product shrank by 1.4 percent in the latest quarter, not by 1.7 percent (which was the rate of decline in the first three months of the year).

An earlier version of this article misstated the rate of decline in Cyprus’s economy. Its gross domestic product shrank by 1.4 percent in the latest quarter, not by 1.7 percent (which was the rate of decline in the first three months of the year).