Eurozone Emerges From Recession In 3rd Quarter

London: The 16-country euro zone officially joined the United States and Japan of recession after figures on Friday showed that its economy grew 0.4 percent in the third quarter of the previous three months.

However, the increase in the EU statistics office Eurostat was not as great as 0.6 percent, most economists have been predicting, since the growth in major economies fell below the forecasts. With a pickup in exports partly offset by weaker household spending, the German economy grew by 0.7 percent and France 0.3 percent.

However, the third quarter increased production of the euro area was the first in six quarters and brings to an end worst recession in Europe since World War II. Although banks in the euro area have not been at the epicenter of the financial crisis that caused the global economic downturn, the region suffered the demand for high value products fell off a cliff.

The recession was particularly savage on the change of year. The quarterly decline of 1.8 percent in the fourth quarter of 2008 was followed by a further drop of 2.5 percent in the first quarter of 2009. In the second quarter, production fell a modest 0.2 percent in Germany and France, emerged from recession.

The magnitude of the recession in the euro area is clearly visible in the annual comparison. Although production in the euro zone grew at a quarterly basis, which was 4.1 percent below year-ago levels in the third quarter, a modest improvement in the slide of 4.8 percent in the last three months.

Despite the slight improvement, growth is not expected to return to pre-crisis levels for a while, which means the loss of production during the recession will take years to be recovered.

Institutions like the International Monetary Fund have warned that recovery will be anemic, if the authorities do more to solve the problems in the financial sector and if unemployment keeps rising consumer confidence down – in Spain, the unemployment rate stands at a staggering 19.3 percent.

“The region is, at least, the recession and still being reasonably strong growth next year by 1.5 percent strange, but there is little evidence yet of recovery in domestic demand needed to sustain a strong recovery,” said Jonathan Loynes, chief economist at Capital Economics.

The United States also returned to growth in the third quarter, growing by a quarterly rate of 0.9 percent, according to Eurostat, while Japan’s recession ended in the second quarter, when its economy grew 0.2 percent.

Although most countries in the euro zone recession – including Italy, whose economy grew 0.6 percent – some continued contract. Thursday’s figures showed that Spain’s economy shrank by 0.3 percent in the third quarter as it continued to suffer from the collapse of its housing market.

In part because of the patch recovery, political analysts warned to be careful about how to start taking back some of the incentives it created to avoid recession becomes a depression.

The European Central Bank cut its benchmark interest rate to a record low of 1 percent, while governments throughout the eurozone increased spending in support of their economies.

“The European Central Bank faces the challenge of balancing a return to growth in large economies with stronger euro area continued weakness in economies like Spain, Greece and Ireland,” said Charles Davis, senior economist at the Research Center Economics in London.

“In addition, the difficult decisions ahead to restore public finances in euro area-wide health,” said Davis, who expects the next fiscal year to put a brake on recovery.

French Finance Minister Christine Lagarde, said French fourth quarter growth will be “a little better than 0.3 percent.”

“Hopefully we can finish the year at maximum speed. The confidence indicators and elements that we have today give us hope,” Lagarde said in an interview on French radio Europe-1.

In addition, Eurostat said the EU as a whole, which includes non-euro countries like Britain and Sweden, is also the recession, with growth of 0.2 percent in the third quarter. EU rate of growth was below the euro area, partly because Britain shrank by 0.4 percent in the third quarter.

Tags: 3rd Quarter, Eurozone Emerges, Recession