France, Germany return to growth in 2nd quarter

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

It was the first time since August 2008 its statement had not characterized the economy as contracting or weakening.

The Bank of England struck a slightly more subdued tone in its quarterly inflation report on Wednesday, saying Britain's recession would end early next year.

Britain now looks in relatively poor shape, its economy having shrunk by 0.8 percent in the second quarter.

In France, the second quarter rise was supported by solid consumer spending, which has been propped up by government stimulus measures ranging from tax breaks to car trade-in schemes, and a surprise turnaround in exports.

Year-on-year, German GDP fell by 7.1 percent in the second quarter, following a 6.4 percent drop in Q1.

The government expects the economy to contract by some six percent this year but the Economy Ministry had already said the economy probably stabilized in the second quarter.

"The figures should encourage us," German Economy Minister Karl-Theodor zu Guttenberg said in a statement. "However, there are no grounds for euphoria, because we're still a long way from seeing the economy back at the level that it was at last year."

REASONS TO BE CAUTIOUS

Experts also remain cautious with budget deficits spiraling under the weight of government stimulus packages and unemployment levels set to climb for some time.

"If firms decide to start firing people in the autumn rather than putting them on shorter hours, it's going to have a negative impact on wages and hit consumption (in Germany)," said Christian Dreger of the DIW economic institute.

Banks in many countries also remain in poor shape, reliant on state support and reluctant to lend.

"There are lots of problems we haven't solved," said Jens-Oliver Niklasch, analyst at LBBW. "As long as it's not clear that the banks' capital base is robust, we can't assume that the crisis is over."

But if nothing else, the prospect of a 1930s-style depression appears to have been banished.

"We had contracted so much over the past four quarters that a return to growth is almost mechanical," said Marc Touati at Global Equities in Paris. "Still, it's good to see that we're not in a 1929 or 1930s type situation of total collapse."

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