Growth in Germany and France ends euro recession

17 countries that use euro saw collective economic output grow by 0.3 per cent

Germany and France finally powered the eurozone out of its longest-ever recession between April and June, official figures showed today.

The stronger-than-expected  0.3 per cent growth ends six-successive quarters of economic contraction for the single-currency bloc and also heralds better news for the UK’s exporters, which send around 40 per cent of their goods to European markets.

The recovery was led by the eurozone’s two biggest economies as powerhouse Germany managed  0.7 per cent growth and France cheered markets with an unexpectedly strong 0.5 per cent bounce-back from a mild recession of its own. This was France’s strongest advance for two years.

The return to growth — albeit at half the pace of the UK’s 0.6 per cent growth during the same quarter — caps a year of relative stability for the region since European Central Bank president Mario Draghi pledged to do “whatever it takes” to protect the single currency. Although the eurozone is still blighted by record unemployment of 12.1 per cent, Draghi has also cut borrowing costs to a record low of 0.5 per cent and said interest rates will remain at the same or lower levels “for the foreseeable future”.

Outside of the eurozone’s two biggest economies, bailed-out Portugal surprised with growth of 1.1 per cent amid welcome signs of stabilisation for the periphery, although Spain and Italy shrank by 0.1 per cent and 0.2 per cent respectively as austerity measures bite to tackle huge debt piles.

ABN Amro economist Nick Kounis said: “We think the eurozone is set for a gradual economic recovery, helped by a sharp slowing in the pace of austerity, an acceleration in global demand growth and a sustained easing of uncertainty and financial stress. However, a number of drags remain in place. Unemployment is likely to continue rising for some time, while fiscal consolidation, although easing, is still a negative.”

But even with the return to growth, the eurozone’s economy remains  0.7 per cent smaller than during the second quarter last year and GDP is still below its pre-recession peak in 2008.

ING Bank economist Peter Vanden Houte said: “It is still too soon for the ECB to lay back and relax.

“To be sure, the probability of a rate cut has somewhat declined given the budding economic recovery. That said, we believe the ECB will continue to use forward guidance to prevent monetary conditions from tightening. We don’t see any chance of a rate hike before the second half of 2015.”

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