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Europe's recovery gains breadth in Q3

Source: Reuters - Fri 13th Nov 2009

Europe's recovery from recession gained traction as Germany and France reported further growth in the third quarter on Friday and Italy's economy started to expand for the first time in more than a year.

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

Germany and France, which both emerged from recession in the second quarter with 0.3 percent growth, posted quarterly expansion rates of 0.7 and 0.3 percent respectively in the three months to end-September.

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

That brought the three largest mainland economies above the water line, though French GDP, driven almost solely by exports as traditionally sturdy domestic consumption wilted, was only half as strong as forecasters had anticipated.

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 firms are no longer running down warehouse stocks, or inventories, so frantically.

"The inventory cycle has just started to turn and positive news will continue" said Carsten Brzeski, economist at ING bank, a factor other economists said would help to support GDP in the final quarter of 2009.

Official estimates for aggregate euro zone GDP were due at 10 a.m. British time. A Reuters poll showed forecasters counting on a 0.5 percent GDP rise in third-quarter GDP following a drop of 0.2 in the second quarter, the last of five consecutive quarters of contraction in the worst downturn on records. 


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 stabilisation 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 European Union, 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.

That, the European Commission says, is three times as big as average output losses in three previous recessions since the 1970s.

The U.S. economy emerged from recession in the third quarter with annualised GDP growth of 3.5 percent versus the preceding three-month period, a figure that equates to about 0.8 percent for the sakes of comparison with European figures.

International Monetary Fund chief Dominique Strauss-Kahn, visiting Singapore, said he did believe there would be a so-called double-dip recession where the current upturn proves short-lived and morphs rapidly into another downturn.

"Our forecast has that, not only in the United States but also the rest of the world, 2010 will be a year of recovery" he said.

While the large mainland economies of Europe are growing again, Britain, Ireland, Spain and others have yet to do so even if there is evidence that the worst of the crisis has passed. 

Spain on Thursday reported a third-quarter GDP drop of 0.3 percent, versus a second quarter where the contraction was a far heftier 1.1 percent.

Beyond the euro currency area, Britain reported its sixth straight quarter of shrinkage in the third-quarter, when GDP fell 0.4 percent versus the previous one.

On Europe's eastern flank, accustomed to far racier growth rates before the downturn, Czech GDP rose 0.8 percent in the third quarter and Hungarian GDP fell 1.8 percent in the same period, both compared to the second quarter.

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