Last updated: August 14, 2013 7:34 pm

Berlin and Brussels credit fiscal discipline and reform for eurozone recovery

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Eurozone GDP

The eurozone emerged from an 18-month recession in the second quarter on the back of rebounding economies in Germany and France, prompting Brussels to argue that a combination of austerity and structural reform was starting to bear fruit.

The 17-nation euro area expanded 0.3 per cent from April to June, ending its longest contraction since its creation in 1999. Germany, which holds federal elections on September 22, grew 0.7 per cent, on the back of robust manfucturing output and consumer spending, while France beat expectations with 0.5 per cent growth, ending its double-dip recession. Portugal emerged from a severe contraction, with growth of 1.1 per cent.

“The data ... supports, in my view, the fundamentals of our crisis response: a policy mix where building a stability culture and pursuing structural reforms supportive of growth and jobs go hand in hand,” said Olli Rehn, European commissioner for economic affairs.

“There is every reason for people in Germany to look to the future with optimism,” said Philipp Rösler, economy minister and leader of the Free Democrats, “We have recovered from the weak phase of the winter half-year outstandingly well.”

Joachim Pfeiffer, economics spokesman for the ruling Christian Democratic Union in the German parliament, said Germany was leading its neighbours in the eurozone out of recession thanks to its consistent and reliable economic policy.

Recent indicators have indicated the eurozone recovery has been picking up speed over the summer but Wednesday’s growth figures suggested “the region was already in decent upswing mode” in the spring, said Gilles Moec, economist at Deutsche Bank.

However, analysts pointed to one-off factors benefiting the bloc’s performance, such as a strong uptick in German construction after a cold winter.

Disparate measures

Disparate measures
Disparate Measures

The data also prompted a sharp warning from Germany’s powerful manufacturing lobby over the sustainability of German exports, and a drop in investment spending.

Soon after the Federal Statistics Bureau on Wednesday said gross domestic product increased 0.7 per cent seasonally adjusted in the second quarter, The Federation of German Industry (BDI) reduced its forecast for 2013 from 0.8 per cent to 0.5 per cent, blaming slow global growth and laggardly domestic investment.

Markus Kerber, chief executive of the BDI, said: “An export growth of 3.5 per cent, which we originally expected, will now be very difficult to achieve.” As an exporter, Germany was dependent on the world market, he added.

He said the greatest concern of the business lobby was the low level of investment in the German economy, with the share of investment in GDP falling from 20 per cent in 1999 to just 17 per cent in 2012. German GDP was bolstered by manufacturing, and domestic and public consumption.

Portugal emerges from its deepest recession in more than 40 years

The skyline of city of Lisbon and the city's port are seen from the Tagus River.

Portugal has emerged from two and a half years of deep recession with economic growth of 1.1 per cent in the second quarter, surpassing expectations with the strongest quarterly growth in the EU after 10 consecutive quarters of contraction, writes Peter Wise in Lisbon.

The first sign of a turnround in the country’s deepest recession for more than 40 years is welcome news for Pedro Passos Coelho, Portugal’s centre-right prime minister, whose coalition government was almost brought down last month by an internal rift over its tough austerity policies.

Full story

Elga Bartsch, chief economist at Morgan Stanley, forecast a slowdown in German growth in the third quarter. with “rather weak” domestic orders for capital goods offsetting higher customer spending.

She also warned that the GDP figures could well include a significant contribution from inventory rebuilding. “Our analysis suggests that in particular in Germany, much of the recent output has not been sold yet.”

Mr Rehn added that the data, which showed slower growth than Japan and the UK’s 0.6 per cent and the 0.4 per cent of the US, suggested that a sustained recovery was within reach, but also warned that the recovery remained delicate.

“The growth figures remain low and the tentative signs of growth are still fragile,” Mr Rehn said.

The divergence in the health of member countries’ economies was underscored by more sobering figures from the Netherlands, where GDP fell 0.2 per cent, its fourth straight quarter of contraction. Meanwhile, in Portugal, where tensions over austerity have been mounting, economic output expanded 1.1 per cent quarter-on-quarter, compared with economists’ expectations for 0.1 per cent growth. This month, data showed both Italy and Spain were easing out their recessions.

Markets were sceptical about the recovery, with the euro trading flat at $1.3258 against the dollar. The FTSE Eurofirst 300 edged 0.3 per cent higher, while France’s benchmark CAC 40 index fared better, rising 0.5 per cent. In Germany, the Dax gained 0.3 per cent.

Earlier in the morning, France surprised analysts as the eurozone’s second-largest economy confirmed that it had escaped a six-month recession after posting second-quarter growth of 0.5 per cent. Analysts had expected the economy to expand at just 0.2 per cent.

Spurring France’s improved figures, private consumption rose at its briskest pace in more than two years, driven by energy consumption and car sales. Exports also performed well. The result prompted Insee, the statistics agency, to revise up its forecast for the full year to 0.1 per cent from a previous estimate of a 0.1 per cent contraction. The change brings its forecast in line with that of the government.

Tullia Bucco, an economist at UniCredit Research, said the French recovery was “much more solid than we could have envisaged ... today’s outcome brings good news for the recovery prospects of French GDP”.


FastFT: Recovery watch: euro area GDP breakdown


The eurozone’s economic growth may mean it has finally emerged from recession. However, it is still slower than the US, which recorded a 0.4 per cent expansion in Q2, and Japan and the UK, which notched up 0.6 per cent quarter-on-quarter GDP growth for the three months ended in June.

Here’s the full country-by-country breakdown for the 17-nation euro area – and note we’ve also put the UK in the table, for context – from EU statistics agency eurostat.

Portugal, one of the region’s most troubled economies, is the surprise chart-topper after a 1.1 per cent jump in GDP on the back of strong export growth.

At the bottom? Cyprus, unsurprisingly, the euro area’s third-smallest economy and the recipient of an international bailout earlier this year.

The first number is the quarter-on-quarter GDP growth for Q2; the number in parentheses is the GDP figure from Q1.

Portugal: 1.1% (-0.4%)

Germany: 0.7% (0.0%)

Finland: 0.7% (0.2%)

UK: 0.6% (0.3%)

France: 0.5% (-0.2%)

Slovakia: 0.3% (0.2%)

Austria: 0.2% (0.1%)

Estonia: 0.1% (-1.0%)

Belgium: 0.1% (0.0%)

Spain: -0.1% (-0.5%)

Italy: -0.2% (-0.6%)

Netherlands: -0.2% (-0.4%)

Cyprus: -1.4% (-1.7%)

Note: second-quarter GDP data are not available from eurostat for Greece, Ireland, Luxembourg, Malta and Slovenia


Letter in response to this report:

Eurozone has emerged – from intensive care / From Mr James Anderson

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