Europe emerges from recession

By Anthony Faiola
Washington Post Foreign Service
Saturday, November 14, 2009

LONDON -- Buoyed by strengthening rebounds in Germany and France, the 16-nation euro zone has officially climbed out of its worst recession since World War II, fueling hopes that a lasting global recovery is beginning to take shape.

The data released Friday -- showing modest 0.4 percent growth during the third quarter among the nations that use the euro, compared with a 0.2 percent contraction in the second quarter -- comes after the United States and Japan have also officially emerged from recession.

At the same time, economies in emerging giants such as China and Brazil are roaring ahead. Though several countries in Europe -- most notably Britain, Spain and Ireland -- are still mired in sharp downturns, even troubled nations such as Italy are beginning to post positive growth.

Some analysts are optimistic that the fragile global recovery that started several months ago may be firming up. Most, however, remain cautious, warning that the rebound in some regions -- especially Europe -- remains relatively weak, and the risk of a slip back into recession remains.

Unemployment rates continue to climb in Europe and the United States, and national debt in many nations is at the worst levels in years. While government stimulus spending worldwide may have succeeded in jumpstarting the global economy, some countries may be forced to scale down spending in 2010 due to soaring budget deficits. Several nations in Europe are poised to start withdrawing cash-for-clunkers and employment programs that have buoyed their economies in recent months.

"Yes, any improvement in economic activity in the world is good news," said Howard Archer, chief European economist at IHS Global Insight in London. "But the question is: is this sustainable, especially once the stimulus measures start to be withdrawn?"

The rebound in Europe, one of the regions hardest hit by the financial crisis that started in the United States, is the latest positive sign for the global economy.

The recovery in the region is being led by Germany and France, which became the first major economies to pull out of recession in the second quarter. They continued expanding in the third quarter that ended in September, with Germany posting a strong 0.7 percent gain while France pulled out a far more modest 0.3 percent uptick.

The recoveries there, analysts say, appear to be stemming in large part from a rebound in exports, particularly to meet increased demand in China. In addition, some retailers in Europe appear to be restocking shelves to make up for vastly reduced inventories.

Yet there hasn't been much positive change in one of the key indicators on which economists judge the strength of the recovery: consumer demand. In fact, consumer spending fell in Germany during the third quarter and was flat in France.

In addition, Europe's export-led recovery, analysts say, may be in jeopardy from the weak dollar, which has made things from Spanish rioja wines to German power plants more expensive on global markets. That, analysts say, has been a factor in the jump in Europe's unemployment rate to 9.7 percent in September, the highest level since January 1999.

"We are predicting an 8 to 10 percent drop in 2010 exports" as a result of the weak dollar, said Elana Olesa Munoz, spokeswoman for Miguel Torres SA in Barcelona, Spain, one of Europe's largest wine exporters.

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