Eurozone emerges from recession in 3rd quarter

AP News
Posted: Nov 13, 2009 6:33 AM

The 16-country eurozone has officially joined the United States and Japan out of recession, after figures Friday showed its economy grew by 0.4 percent in the third quarter from the previous three-month period.

However, the rise reported by the EU's statistics office Eurostat was not as large as the 0.6 percent most economists had been predicting, as growth in major economies fell short of forecasts. With a rebound in exports partially offset by weak household spending, Germany's economy grew by 0.7 percent and France's by 0.3 percent.

Still, the third quarter rise in eurozone output was the first in six quarters and brings to an end Europe's sharpest recession since World War II. Though the eurozone's banks were not at the epicenter of the financial crisis that triggered the global economic downturn, the region suffered as demand for its high-value products fell off a cliff.

The recession was particularly savage at the turn of the year. The 1.8 percent quarterly decline recorded in the fourth quarter of 2008 was followed by an even bigger 2.5 percent drop in the first quarter of 2009. In the second quarter this year, output fell a modest 0.2 percent as Germany and France emerged from recession.

The scale of the downturn in the eurozone is clearly visible in the annual comparisons. Although eurozone output grew on a quarterly basis, it was 4.1 percent below year-ago levels in the third quarter, a modest improvement on the 4.8 percent slide recorded in the previous three months.

Despite the modest improvement, growth is not expected to return to pre-crisis levels for a while yet, meaning the output lost during the recession will take years to be made up.

Institutions like the International Monetary Fund have warned that recovery will be anemic if policymakers don't do more to sort out problems in the financial sector and as long as rising unemployment keeps consumer confidence down _ in Spain, the jobless rate stands at an astonishing 19.3 percent.

"The region is at least out of recession and still on track to grow by a reasonably solid 1.5 percent odd next year, but there is scant evidence yet of the pickup in domestic demand needed to sustain a stronger recovery," said Jonathan Loynes, chief European economist at Capital Economics.

The United States also returned to growth in the third quarter, growing by a quarterly rate of 0.9 percent, according to Eurostat, while Japan's recession ended in the second quarter when its economy grew by 0.2 percent.

Although most eurozone countries are out of recession _ including Italy, whose economy grew 0.6 percent _ some continued to contract. Figures Thursday showed Spain's economy shrank 0.3 percent in the third quarter as it continued to reel from the collapse of its property market.

Partly because of the patchy recovery, analysts warned policymakers to be careful about how they start taking back some of the stimulus measures they set up to prevent the recession from turning into a depression.

The European Central Bank slashed its benchmark interest rate to a record low of 1 percent, while governments across the eurozone increased spending to support their economies.

"The European Central Bank faces the major challenge of balancing a return to growth in the stronger large eurozone economies with ongoing weakness in economies like Spain, Greece and Ireland," said Charles Davis, senior economist at the Centre for Economic and Business Research in London.

"Moreover, difficult decisions lie ahead in order to return public finances across the eurozone to health," said Davis, who expects fiscal tightening next year to put some brakes on the recovery.

French Finance Minister Christine Lagarde said France's fourth quarter growth will be "a bit better than 0.3 percent."

"I hope that we'll finish the year at top speed. The confidence indicators, and the elements we have today give us hope," Lagarde said in an interview on French radio Europe-1.

Elsewhere, Eurostat said the EU as a whole, which includes non-euro countries like Britain and Sweden, is also out of recession, having grown 0.2 percent in the third quarter. The EU's rate of growth was lower than the eurozone's partly because Britain contracted 0.4 percent in the third quarter.