European recession over, but blackspots remain

By Brian Love

PARIS (Reuters) - Europe's economic recovery gained traction when Germany and France reported further growth in the third quarter on Friday and Italy's economy started to grow too, lifting the euro zone and wider European Union out of recession.

Spain and Britain continue to struggle but Germany, France and Italy, which account for more than two-thirds of aggregate euro zone output, made the third quarter the turning-point for the common currency area, which spans 16 countries.

Germany and France, which shook off recession in the second quarter, posted quarterly growth rates of 0.7 and 0.3 percent respectively in the three months to the end of September, even though France did only half as well as economists had expected.

Italian gross domestic product turned positive with a rise of 0.6 percent quarter over quarter, following five quarters of shrinkage.

That brought the euro zone as a whole above the water line, even though French GDP, propelled almost solely by exports as traditionally sturdy domestic consumption wilted, was just half of the 0.6 percent rise forecasters had anticipated.

The European Union's statistics office, Eurostat, said the aggregate GDP of both the euro zone and 27-country EU of which it is part, turned positive, with quarterly growth of 0.4 percent and 0.2 percent respectively.

For graphic on euro zone GDP, click on: here

Germany does not give detailed figures until later in the month but economists noted that exports seemed to be the main driver of recovery there as in France, along with the fact that companies are no longer running down warehouse stocks, or inventories, so frantically.

"In sum the euro zone has officially turned the corner and that is cause for relief, not celebration," said Martin van Vliet, an economist at ING bank who stressed that investment and consumer spending needed to pick up before the recovery could be considered sustainable.

"The euro zone's worst post-war recession may be officially over, but unfortunately for many people and businesses it will continue to feel like a recession for some time to come."

The positive third-quarter figure for euro zone GDP followed a drop of 0.2 in the second quarter and ended five consecutive quarters of contraction.

UPHILL ACCELERATION

Euro zone GDP is forecast by the European Commission to have shrunk a record 4 percent in 2009, with most of that plunge in the first half of the year, before signs emerged of a stabilization in global trade and destocking by companies.

The Commission on November 3 marginally raised its forecast for GDP in 2010 to 0.7 percent and predicted an acceleration to 1.5 percent in 2011, with much the same forecast for the 27-country EU, but said there could be another "soft patch" in the first half of 2010.

The challenge policymakers face now is deciding when to end the fiscal and monetary stimulus credited with averting a steeper slump and limiting the cumulative loss of GDP to five percentage points in the EU since GDP started falling in the second quarter of 2008.