France and Germany Climb Out of Recession

Spain and other European nations have yet to return to growth, but their economic contractions are moderating.
Spain and other European nations have yet to return to growth, but their economic contractions are moderating. (By Mikel Laburu -- Bloomberg News)
By Anthony Faiola
Washington Post Staff Writer
Friday, August 14, 2009

Fresh signs of a nascent economic recovery came from hard-hit Europe on Thursday, with Germany and France unexpectedly becoming the first major industrialized nations to officially pull out of the global recession.

Though their recoveries were modest by virtually any standard and may yet stall in the months ahead, the surprising bounce back to growth in Europe's largest economies comes on the heels of steadily rising economic optimism across the globe.

Analysts are pointing to improving indicators in the United States, China and even Japan, the world's second-largest economy, which some observers predict is set to announce its own return to growth in the coming days. Though a host of other European economies -- including Britain, Italy and Spain -- are still mired in one of the worst recessions in generations, contractions are moderating even in many of those nations, an indication that they too may be close to rebounding. It underscores, analysts say, how ramped-up government stimulus spending around the globe appears to be having at least some of its desired effects.

A significant rebound in the global economy could both help and hurt the United States. Growth abroad could fuel an eagerly anticipated uptick in U.S. exports, boosting the manufacturing sector and potentially channeling more investment into U.S. soil. Yet too quick an increase in global demand could spark a painful price spike for commodities such as oil, driving up inflation before the United States and other nations have fully emerged from recession.

In the United States, the Federal Reserve this week signaled that it sees the American recession easing. The central bank said that it will begin pulling back from two years of unprecedented intervention in the economy this October. Even countries that were spiraling downward only a few months ago, such as South Korea, appear to be on more stable ground. The International Monetary Fund this week predicted that the South Korean recession, while severe, may not be as deep this year as originally thought.

The turnaround in Germany and France drove up major stock indexes from Seoul to Paris to Moscow on Thursday, while the euro gained more ground against the dollar. The Dow Jones closed up 36.58 points, to 9398.19.

"We don't know whether these numbers are going to hold out in the long run, but they do seem to indicate that we're reaching a bottom a lot sooner than we thought," said Raj Badiani, senior economist for IHS Global Insight in London. "It looks like the worst might be over."

Yet analysts including Badiani caution that it is still far too early, and that the indicators remain too weak, to declare the global recession dead. Recent gains, particularly in Europe, mask the still-ample threat of more pain ahead.

In Germany, economic activity jumped 0.3 percent from April to June compared with the previous three months after a 3.5 percent quarterly contraction in the beginning of the year. Though detailed economic data have yet to be released, the rebound in the second quarter there, analysts said, came partly from consumer spending related to government-sponsored programs, such as a cash for clunkers plan, that are set to expire soon.

In addition, the German government so far has cushioned job losses through state-sponsored corporate incentives that are also due to run out, leading many analysts to predict a further surge in the unemployment rate there in months ahead.

France also reported growth of 0.3 percent in the quarter.

Economists also do not discount a fresh wave of bank rescues in Europe, where financial officials are still under pressure to do more to force the cleanup of balance sheets at ailing institutions. Recent signs of recovery will also be tested if, as many observers predict, unemployment rates across Europe continue to edge higher.

With many analysts also predicting a "jobless recovery" in the United States, such as the one following the 2001 recession, a projected global turnaround later this year may be more visible in statistical calculations than in consumer pocketbooks around the world.

Though Germany and France may have exited their yearlong recessions, Europe as a whole is still struggling. Economic activity across the 16 member nations that use the euro fell by 0.1 percent in the second quarter, the European statistical office reported Thursday. The drop was less than predicted by most economists, but it signals that the deep recession that started in Europe in the first half of 2008 continues. Just Wednesday, the European statistical office also reported that June industrial production fell 0.6 percent from a month earlier while the unemployment rate climbed to a 10-year high of 9.4 percent.

Yet optimists were taking heart on signs that Germany and France -- now statistically ahead of the United States in the race toward recovery -- were aided in the quarter from April to June by recovering global demand for everything from German-made power plants to French cheese. In both nations, exports, which had fallen off a cliff in recent months, either ceased their precipitous fall or edged upward.

Those are among the strongest signs yet, analysts say, that robust growth in China and a budding recovery in the United States may finally be pumping life back into world trade, which suffered its worst declines since World War II recently.

"They are good signs, but not yet conclusive," said Janet Henry, chief European economist for HSBC in London. "We still have to wait and see."

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