France and Germany emerge from recession

The French and German economies both today reported a return to growth in the second quarter, bringing an end to recession in two of Europe's biggest economies.

Both countries reported growth in gross domestic product (GDP) of 0.3 per cent in the three months to the end of June, on the back of more positive net trade figures and higher consumption in the public and private sectors — a scenario that few economists and market-watchers had predicted.

However, some analysts raised fears over the sustainability of a recovery, since positive trade data was largely a result of a sharp drop in imports rather than surging exports.

“The question is how lasting it will be,” said Jens-Oliver Niklasch, an analyst for LBBW, the German bank. “There are lots of problems we haven’t solved. In particular, the banking sector is still dependent on the state umbrella.”

Many other European countries remain mired in recession. Italy’s GDP fell by 0.5 per cent in the second quarter, Spain’s economy declined by about 0.9 per cent and Holland's shrank by 0.9 per cent.

However, the positive data from France and Germany helped to ease the recession in the 16-nation eurozone, with GDP falling by a much less than expected 0.1 per cent between April and June.

Although it was the fifth consecutive decline in economic output in the 16 countries that use the euro, the marginal fall boosted hopes that the recession in the eurozone could already be over.

The French Finance and Economy Minister, Christine Lagarde, said: "The data is very surprising. After four negative quarters, France is coming out of the red."

Analysts had expected GDP in France and Germany to tumble by about 0.3 per cent in the second quarter, as opposed to the 0.3 per cent rise that both nations reported.

Ms Largarde said that consumer spending and strong exports had helped to pull France out of recession. "What we see is that consumption is holding up," she said.

Household consumption rose by 0.4 per cent in the second quarter, helped by falling prices and incentive schemes aimed at persuading motorists to trade in old cars for new models.

Foreign trade contributed 0.9 per cent to the GDP figure, which Ms Largarde said had had a "very strong impact".

Germany's economy emerged from its recession in the second quarter, when it grew for the first time since early 2008, the Federal Statistics Office reported.

The agency said that after adjustment for price, seasonal and calendar variations, GDP rose by 0.3 per cent over the previous quarter.

That means that Germany’s recession, which began in the second quarter of 2008, is over on a technical basis, because a recession is defined as two consecutive quarters of negative growth. However, the economy remains weak, with the global crisis hurting exports.

On an unadjusted basis, GDP dropped 7.1 per cent in the second quarter, compared with the same quarter last year, and Germany’s economy is still expected to shrink sharply for the full year.

(Published by Times Online - August 13, 2009)