Europe’s Economy Emerges From Recession on Exports

By Simone Meier

Nov. 13 (Bloomberg) -- The euro-area economy emerged from its worst recession since World War II in the third quarter as exports from Germany and France helped compensate for households’ reluctance to increase spending.

Gross domestic product in the economy of the 16 nations using the euro rose 0.4 percent from the second quarter, when it fell 0.2 percent, the European Union’s statistics office in Luxembourg said today. Economists had forecast the economy to grow 0.5 percent, according to the median of 34 estimates in a Bloomberg survey.

Europe’s economy is gathering strength after governments stepped up stimulus measures and the European Central Bank injected billions of euros into markets to encourage lending. While confidence in the economic outlook is at a 13-month high, rising unemployment, the expiration of stimulus plans and a surging euro are threatening to undermine a recovery.

“The euro-zone economy has officially turned the corner and that is cause for relief, but not celebration,” said Martin van Vliet, a senior economist at ING Bank in Amsterdam. “The economy remains in a fragile state and is recovering mainly because of government stimulus and temporary inventory effects.”

The euro was little changed against the dollar after the release, trading at $1.4874 at 10:30 a.m. in London after rising as high as $1.4902 earlier today. The yield on the German 10- year benchmark bond dropped 0.2 basis points to 3.34 percent.

Global Economy

In the year, euro-area GDP declined a seasonally adjusted 4.1 percent in the July-September period after dropping 4.8 percent in the second quarter. In the 27-nation EU, GDP rose 0.2 percent from the previous three-month period, when it dropped 0.3 percent. The statistics office is scheduled to publish a breakdown of third-quarter GDP on Dec. 3.

The global economy is also gathering steam, led by China, where the manufacturing industry expanded at the fastest pace in 18 months in October. In the U.S., the world’s biggest economy, leading economic indicators rose for a sixth month in September.

Lafarge SA, the world’s largest cement maker based in Paris, witnessed the “first signs of stabilization in the global economic slowdown” in the third quarter, according to Chief Executive Officer Bruno Lafont. Stefan Jacoby, head of Volkswagen AG’s North America division, said on Nov. 11 that “things are looking up” for Europe’s biggest carmaker.

Largest Economy

In Germany, Europe’s largest economy, GDP rose a seasonally adjusted 0.7 percent from the second quarter, when it increased 0.4 percent. The French economy expanded 0.3 percent in the third quarter, while Italy showed 0.6 percent growth. All three GDP figures were below economist forecasts.

Europe’s recovery is being threatened by the dollar’s 18 percent slide against the euro and the region’s policy makers are calling on China to shoulder some of that burden by allowing the yuan to appreciate. China has kept its currency steady against the dollar since July 2008 and ECB President Jean-Claude Trichet said on Nov. 5 that a stronger yuan would be “welcome.”

While China’s central bank this week scrapped a pledge in its quarterly report to keep the yuan “basically stable,” President Hu Jintao didn’t address the currency peg in a speech to executives in Singapore today.

Some economies are trailing the European recovery. In the U.K., where Prime Minister Gordon Brown is struggling to shore up his popularity before elections due in June, the economy remains mired in its longest recession on record. GDP dropped 0.4 percent in the third quarter, extending the contraction over sixth quarters. The Spanish economy also contracted for a sixth quarter in the three months through September.

Cosmetics Maker

For now, companies are relying on faster growing markets to bolster sales. Paris-based Pernod Ricard SA, the world’s second- biggest liquor maker, said on Nov. 3 that demand is “very lively” in China and India. L’Oreal SA, the world’s largest cosmetics maker, on Nov. 5 reported stronger demand for shampoos and makeup in Asia and Latin America.

“Sales are accelerating in emerging markets,” L’Oreal CEO Jean-Paul Agon said on that day in Paris. “Overall, the situation is getting better.”

With a global recovery taking hold, central banks have signaled they are ready to wind down some unconventional measures. The ECB left its key rate at 1 percent on Nov. 5 and signaled that it won’t offer banks unlimited cash over 12 months next year. The U.S. Federal Reserve earlier this month outlined the conditions needed for it to raise borrowing costs.

‘At a Trot’

“The euro zone exited recession at a trot rather than at a canter in the third quarter,” said Howard Archer, chief European economist at IHS Global Insight in London. “The likely fragility of the recovery means that both governments and the ECB need to be wary about withdrawing stimulus measures too soon or too aggressively.”

With the euro’s ascent against the dollar since mid- February making exports more expensive and rising unemployment undermining consumer demand, the economy may be slow to gain momentum. Europe’s jobless rate rose to 9.7 percent in September, the highest since January 1999.

Dublin-based Smurfit Kappa Group Plc, Europe’s largest maker of cardboard boxes, said on Nov. 10 that “a consumer-led economic recovery” hasn’t yet materialized. Peter Voser, CEO of Royal Dutch Shell Plc, Europe’s largest oil company, said on Oct. 29 that the outlook remains “very uncertain.”

“The recovery is fragile and sluggish,” International Monetary Fund Director Dominique Strauss-Kahn said on Nov. 13. “The recovery will take place earlier in Asia than in the U.S. and in the U.S. earlier than in Europe.”

To contact the reporter on this story: Simone Meier in Dublin at smeier@bloombert.net