France, Germany return to growth in 2nd quarter

(Agencies)
Updated: 2009-08-13 20:27

BERLIN/PARIS: Germany and France achieved a shock return to economic growth in the second quarter of the year, ending their recessions earlier than many policymakers and economists expected, but failed to drag the euro zone with them.

German gross domestic product rose by 0.3 percent in the second quarter, bringing an end to the country's deepest recession since World War Two.

French GDP also grew by 0.3 percent in the second quarter. The consensus in a Reuters poll of economists had predicted a 0.3 percent quarterly contraction in both countries.

"The data is very surprising. After four negative quarters France is finally coming out of the red," French Economy Minister Christine Lagarde told RTL radio.

But in the 16-nation euro zone, GDP slid by 0.1 percent on the quarter, following a 2.5 percent drop in the first quarter.

That, though, was well above the 0.5 percent fall forecast before the French and German figures were released.

"Looking forward, we think that the (euro zone) economy will increasingly benefit from the pick up in the global economy and the fact that the most aggressive phase of destocking is now behind us," said Nick Kounis at Fortis Bank. "The big picture will be one of ongoing gradual recovery through 2010."

Germany suffered a calamitous 3.5 percent contraction in the first quarter of this year to cap four quarters of decline while the French economy shrank by 1.3 percent.

European shares and the euro climbed while euro zone government bond futures dropped after the figures fueled optimism about the outlook for the single currency bloc.

Aside from the euro zone's big two economies, other member nations continue to contract - Italy's economy dropped by 0.5 percent in the second quarter, Austria and Belgium shrank by 0.4 percent and the Netherlands contracted by 0.9.

Greece and Portugal, though, grew by 0.3 percent.

RECOVERY AT LAST?

Evidence is mounting that the worst of the damage wrought by a global financial crisis, which began with a US housing market meltdown in 2007 and took a turn for the worse last year when US bank Lehman Brothers collapsed, is now over.

"The recession has ended. Not just in Germany. The post-Lehman global confidence shock has receded. Firms are investing again," said Joerg Kraemer at Commerzbank.

The Federal Reserve said on Wednesday the US economy was showing signs of leveling out two years after the onset of the deepest financial crisis in decades.

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