Wednesday, 14 August 2013

EUROPE: Recession & Growth

After the longest recession since the common currency's inception, the euro-zone economy is showing signs of new life. The euro zone's economy has finally begun to grow again, thanks largely to strong second-quarter performances by both Germany and France.
The euro-zone economy has had a difficult year and a half. For six quarters in a row, economic output declined, marking the longest recession in the history of the European common currency area. But on Tuesday, the European Union statistics office Eurostat announced that growth has returned.
According to the agency, the combined economies of the 17 euro-zone member-states showed seasonally adjusted growth of 0.3 percent in the second quarter. It marks the first quarter-on-quarter expansion in the single currency area since the final quarter of 2011.

Much of the boost was driven by the euro zone's two largest economies, Germany and France. After limping weakly though a stagnant first quarter, Germany saw growth of 0.7 percent from April to the end of June, according to the German Federal Statistics Office on Wednesday. France, meanwhile, saw a surprising boost of 0.5 percent, according to that country's statistics office. It was the strongest quarterly boost seen in France in nearly two years.

Companies in the euro zone are more optimistic now than they have been for the last year and a half. In July, the London-based Markit purchasing managers' index rose from 48.7 to 50.5 points, taking it above the threshold marking growth. In addition to business owners, consumers in the currency union are also getting more optimistic. Consumer confidence rose in July for the eighth consecutive month.

Some encouraging signs are also coming from the Southern European crisis countries. Prior to the economic growth just announced, Portugal, as well as Spain, has been able to report a drop in unemployment for the first time in two years. Both countries significantly reduced their unit labor costs and increased their exports. Even Greece increased its exports and succeeded in reducing new government borrowing by more than half. The country's economy shrank by 4.6 percent, according to Greece's national statistics office -- but worse had been feared. No growth had been expected by Eurostat for Greece or Ireland.

But the European economy, despite the good news, remains fragile. But not as fragile as it has been. Spain's economy dropped by just 0.1 percent in the second quarter, which is a sign of improvement for the stricken country, and the Italian economy likewise only shrunk modestly, at minus 0.2 percent. Bailout recipient Portugal showed the strongest growth in the entire euro zone, at 1.1 percent.

The state of the global economy remains uncertain. According to the latest World Economic Climate survey, the mood has improved significantly in Europe and particularly in the United States. But in Asia, it deteriorated again after a strong improvement in the second quarter.

The current uncertainty could be pegged to worsening forecasts for China. The government in Beijing has signalled that it may embark on economic stimulus programs in order to defend its planned growth of 7 percent. At the same time, though, it has only just begun to tighten regulations for financial markets that are overheated in many areas.

By Guylain Gustave Moke
Political Analyst/Writer
Investigative Journalist
World Affairs Analyst

Photo-Credit AFP-