Friday, 10 July 2009

France, Germany Exit Recession

The French and German economies both grew by 0.3 per cent between April and June, bringing to an end year-long recessions in Europe's largest economies. Stronger exports and consumer spending, as well as government stimulus packages, contributed to the growth. The data came as a surprise, with few analysts expecting Germany and France to start to recover so soon.

But economic activity in the Eurozone fell by 0.1 per cent, showing the region as a whole is still in recession. Markets reacted positively to the news, with the main German and French markets up more than one per cent at midday.

In London, the FTSE 100 index rose 1.3 per cent, with traders anticipating a positive effect on the UK economy, which by contrast shrank by 0.8 per cent in the second quarter. It was the fifth consecutive quarter of economic contraction in the Eurozone, but was a marked improvement on the 2.5 per cent drop recorded in the first three months of the year.

Both the French and German economies last grew in the first quarter of 2008. Exports in Germany - the world's largest exporter - grew by seven per cent in June, the fastest pace in nearly three years. The country's Federal Statistics Office said that household and government expenditure had also boosted growth.

It added that imports had declined "far more sharply than exports, which had a positive effect on GDP growth". Analyst reaction to Germany's recovery was mixed. "The recession has ended, and it has ended sooner than we all thought. We expect to see growth of one per cent in the third quarter, which is very strong for Germany, and I wouldn't rule out the chance of even better growth," said Andreas Rees at Unicredit.

Others were more circumspect, arguing that the economy is over-reliant on government stimulus packages.

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