MercoPress. South Atlantic News Agency

EU climbs out of 18-month recession led by Germany and France, but still fragile

EC Vice-President Olli Rehn: the economy is gradually gaining momentum, but “there was no room for complacency”

European stock markets mostly rose on Wednesday after official data showed that the Euro zone had finally escaped from a record 18-month recession. The Euro-zone climbed out of recession with surprisingly strong growth of 0.3 percent in the second quarter led by Germany and France, announced the European Union.

In afternoon trading, Frankfurt's DAX 30 had advanced 0.23 percent to 8,435.52 points, while the CAC 40 in Paris had added 0.71 percent to stand at 4,121.68 compared with Monday's closing values.

London's FTSE 100 index was flat, however, at 6,612.05 points, and sterling rallied as investors bet on a rise to British interest rates sooner than expected.

Andrew Kenningham, a senior economist at Capital Economics in London, said that “the end of the Euro-zone recession and the strengthening of the US recovery suggest that global growth will continue, albeit at a relatively modest pace by historical standards.”

Behind the headline gains, however, the third- and fourth-largest Euro-zone economies of Italy and Spain pulled up short, with their economies shrinking 0.2% and 0.1%, respectively.
European Commission Vice-President Olli Rehn said the figures suggested the European economy was gradually gaining momentum, but added there was no room for complacency.

“There are still substantial obstacles to overcome: the growth figures remain low and the tentative signs of growth are still fragile,” he said.

“A number of member states still have unacceptably high unemployment rates; the implementation of essential, but difficult reforms across the EU is still in its early stages. So there is still a very long way to go.”

The figures reaffirm Germany's position as the powerhouse behind the Euro-zone. The country narrowly avoided recession earlier this year, but GDP in the second quarter of 2013 was driven up by demand from both consumers and businesses.

The improvement comes just weeks before a federal election that will see Chancellor Angela Merkel stand for a third term in office.

Her economic adviser, Michael Fuchs, said Germany had a great chance to be a “locomotive” that led European growth. But he was also upbeat about the prospects of struggling Euro zone members.

“I do believe that some of the countries in the periphery, I mean southern periphery, are doing better than expected,” he said.

”I mean, if you see Spain... in Spain, the last three quarters, the unemployment rate went down. It's getting slightly better. They did reforms, maybe not enough yet, but I believe that at the end of the day they will be competitive again, but it takes some time”.