MercoPress. South Atlantic News Agency

France and Germany’s economies performances surprise Britain

Business Secretary Lord Mandelson said it was “good news” for the UK economy which shrank 0.8% in the second quarter.

Lord Mandelson has defended the British Government's handling of the downturn after figures showed that France and Germany have already pulled out of recession. The French and German economies both grew by 0.3% between April and June - surprising analysts who had expected them to shrink.

The opposition Tories said the news proved Prime Minister Gordon Brown and senior ministers had been wrong to claim Britain was better placed than other developed countries to weather the recession.

By comparison, the UK economy shrank 0.8% in the second quarter, and Bank of England Governor Mervyn King warned on Wednesday that recovery would be “slow and protracted”.

However, the Business Secretary - covering for Prime Minister Gordon Brown while he is on holiday - insisted the bounce in two of Europe's largest economies was “good news” and the action being taken by the Government here was working.

“The important point about this good news from Germany and France is that if they are now recovering this is good news for our manufacturers, our exports, because it will mean more orders for our companies in Britain,” Lord Mandelson said. “What we need to do is make sure that the measures that all governments are taking are sustained.

”Actually the recession and the economic contraction that happened in Germany were worse, it started earlier and it went to a lower depth than it did in Britain and I am very pleased and encouraged that Germany is making the recovery that it is“.

However among the 16 countries using the Euro, output fell just 0.1% in the second quarter - much lower than had been expected. The wider Euro zone of 27 countries - which includes the UK and a host of hard-hit Eastern European countries - saw a decline of 0.3%. The relatively upbeat data, together with comments from the US Federal Reserve last night that the US economy was ”levelling out“ drove the FTSE to new highs for the year.

Shadow chancellor George Osborne said: ”It is great news that we are beginning to see some signs of recovery in France and Germany, not least because these are key export markets for British companies. It is striking that the economic data for the same period for Britain has shown a continuing sharp contraction in recession. Once again, Gordon Brown's claim that Britain was better prepared for recession, and would weather it better than other countries, has been proved untrue.“

Liberal Democrat Treasury spokesman Vince Cable said: ”The signs of recovery in France and Germany are to be welcomed, particularly since they are both vital markets for British goods and services. The size of Britain's banking sector and the extent to which the Government allowed debt and the housing bubble to grow left Britain particularly exposed. This was not the case in either France or Germany”.

The return to growth in the Euro zone main economies was especially surprising given the deep declines seen in the first quarter. In the three months to end of March, Germany shrank by 3.5%, recording its fourth quarter of consecutive declines, while the French economy shrank by 1.3%.

As well as growth in Germany and France the economies of Greece and Portugal also expanded by 0.3%, building expectations that the Euro zone would be the first region to recover from the global recession.

Some regions continued to struggle, however, including Italy where GDP declined by 0.5%, as well as the Netherlands, which contracted by 0.9%.