Euro area economy contracted only 0.1 percent in Q2

[August 13, 2009]  LONDON (AP) -- The recession in the 16 countries that use the euro eased substantially between April and June after unexpected growth in Germany and France, the euro zone's two largest economies, official figures showed Thursday.

The European Union's statistics office Eurostat revealed that the euro zone's gross domestic product fell by only 0.1 percent in the second quarter from the previous three month period.

Though that was the fifth straight quarterly decline, the drop was much less than expected.

The news that Germany and France grew by 0.3 percent in the second quarter prompted many economists to revise their forecasts and some actually predicted that the recession in the euro zone may have ended.

The second-quarter fall represents a marked improvement on the record 2.5 percent contraction recorded in the first quarter and may stoke market hopes that the euro zone could actually start recovering in the second half of the year if global demand picks up, as most economists now predict.

It was also better than the 0.3 percent quarterly decline recorded in the U.S., the world's single largest economy.

On an annual basis, though, Eurostat said the euro zone had shed more output than the U.S. Euro zone GDP was down 4.6 percent compared with the 4.9 percent drop recorded in the second quarter and the 3.9 percent posted in the U.S.

Much will depend on what happens in the currency markets over the coming months. Europe's manufacturers will not have been pleased that the euro has risen back up above $1.40 over the last month or so having fallen toward $1.25 earlier in the year -- a higher euro makes euro zone products more expensive in export markets.

The signs so far are that exporters in Germany, the euro zone's biggest single economy, have managed to offset the impact of the higher euro amid rising global demand. Government figures last week showed that German exports were up 7 percent on the month in June, their biggest rise in nearly three years.

[Associated Press; By PAN PYLAS]

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