Euro Area Economy Contracted 0.1% in Q2


The euro-region economy barely contracted in the second quarter as Germany and France unexpectedly returned to growth, suggesting Europe’s worst recession since World War II is coming to an end.

Gross domestic product fell 0.1 percent from the first quarter, when it plunged 2.5 percent, the most since the euro- area data were first compiled in 1995, the European Union’s statistics office in Luxembourg said.

From a year earlier, the euro-area economy shrank 4.6 percent in the second quarter, after a 4.9 percent contraction in the first three months of the year, today’s report showed.

In Germany, Europe’s largest economy, second-quarter GDP rose a seasonally adjusted 0.3 percent from the first quarter, when it dropped 3.5 percent. The French economy also expanded 0.3 percent in the latest quarter.

Italy and the Netherlands were a drag on the euro-area economy. Italy’s economy contracted 0.5 percent and Dutch GDP declined 0.9 percent in the second quarter.

Euro-area GDP has declined for five straight quarters, the longest contraction since the data series started 14 years ago. The statistics office is scheduled to publish a breakdown of second-quarter GDP on Sept. 2.

While signs of a global recovery have prompted speculation about central banks’ exit strategies, the ECB is showing little willingness to depart from its current strategy of offering banks unlimited cash and keeping rates at a record low.

ECB President Jean-Claude Trichet said last week that council members never pre-commit in any respect on the timing of various measures” after the bank last month started buying covered bonds. Federal Reserve policy makers yesterday signaled they will avoid any rush to end their own efforts to strengthen a U.S. recovery.

The ECB, which kept its key interest rate at a record low of 1 percent last week, has offered unlimited cash to banks over 12 months and started buying covered bonds to fight the slump. The Frankfurt-based central bank predicts the euro-area economy will shrink about 4.6 percent this year and around 0.3 percent in 2010. It will release revised forecasts next month.


TradingEconomics.com, Bloomberg
8/13/2009 9:53:51 AM