Europe's surge signals hope for recovery

The European economy bounced back with unexpected strength in the second quarter, buoying hopes that a worldwide recession was drawing to a close. The economy of the 27-country European Union shrank 0.3 percent in the three months ended June 30, for an annual rate of roughly 1.2 percent.

The 16 countries that use the euro registered a 0.1 percent decline for the second quarter, or an annual rate of roughly 0.4 percent. Despite being in negative territory, the European data looked much better than in the first quarter of this year, when both the European Union and the euro zone contracted 2.5 percent from the last three months of 2008. Europe still faces the possibility that its recovery could slow or even stall in early 2010 because of lagging efforts to repair its banking system and sharply rising unemployment. Nonetheless, the sunnier picture in Europe, particularly in Germany and France, has given the region a leg up sooner than most economists expected. Because of its sharply different recipe for combating the recession, Europe is likely to have slower growth than the United States by 2010, economists predict.

Underlying the strong reading were solid performances in France and Germany, each of which grew 0.3 percent in the second quarter, government data showed. Germany’s economy, the largest in Europe, will still probably contract about 6 percent for the full year, economists say.

Within the euro area, France and Germany are helping balance out much weaker performances in Italy, a perpetual laggard, and Spain, where a collapsing housing market has brought an acute recession. Eastern Europe, particularly Hungary and the Baltic countries, remains deeply troubled. And the once-mighty British economy still faces a steep rise in unemployment, though it, too, could return to modest growth in the third quarter, economists said.

The surprise expansion in Germany — most economists had expected a flat or slightly negative reading — reflects gains for the country’s exporters from growth in Asia and what may be a bottoming of the downturn in the United States. Industrial production has also received a fillip from programs that give auto buyers a 2,500 euro ($3,541) bonus if they swap older cars for newer, environmentally friendly models. News last week that German exports had leapt 7 percent in June over the previous month foreshadowed the positive reading on gross domestic product.

But that masked an overall collapse of orders from abroad; German exports in June were down 22 percent from the period a year earlier. And unemployment is expected to rise sharply this year as government programs that kept people on private payrolls throughout Europe begin to expire. Already, the euro area’s unemployment rate stands at 9.4 percent, its highest level in 10 years, and the anemic growth of the coming quarters will not be enough to arrest the slide. That, in turn, could drag down consumer confidence or even generate political backlash in Europe, economists said.

TheNewYorkTimes