Money Matters, Simplified.
European economy inches towards recovery
by Jaspreet Virk - November 13, 2009 - comments
The European economy has gained momentum after the governments stepped in with stimulus measures and the European Central Bank injected more money into the economy to ease lending
New York, November 13 -- Europe has for long buckled under the weight of economic downturn. Not any longer. The 16 euro nations have for the first time reported growth in the third quarter this year, a convincing sign that the economy is rebounding.
Joining the league of nations emerging from recession, euro-zone economy rose 0.4 percent between July and September after falling 0.2 percent in the second quarter this year.
Country-wise analysis
Germany reported 0.7 percent growth in this quarter, while France witnessed a 0.3 percent growth. Italy showed 0.6 percent growth in the same period.
Despite the European countries emerging from economic contraction, United Kingdom is still mired in recession, its longest on record.
UK economy witnessed a 0.4 percent fall from July to September, dashing widespread hopes that the region is returning to growth. Its economy has contracted for six consecutive quarters.
Despite its neighboring countries reporting growth, UK has not been able to recover. Reason: its economy largely depends on service and financial sector, which have been worst affected by recession.
The European Union as a whole reported growth of 0.2 percent in the third quarter.
Recovery evident but fragile
The European economy has gained momentum after the governments stepped in with stimulus measures and the European Central Bank injected more money into the economy to ease lending.
As a result, the economy has reported increase in export orders. Even consumer spending has also starting looking up.
Growth in Germany is basically the result of increase in industrial production, which was up 3.5 percent in this quarter. Exports in the country rose 5.4 percent.
Martin van Vliet, a senior economist at ING Bank in Amsterdam, was quoted by Bloomberg as saying, “The euro-zone economy has officially turned the corner and that is cause for relief, but not celebration.
“The economy remains in a fragile state and is recovering mainly because of government stimulus and temporary inventory effects.”
High unemployment rate and stagnant wages will limit recovery to a certain extent. Further, European economy’s growth is threatened by dollar’s depreciation by 18 percent against euro, which could have an adverse effect on export sector.
In order to nullify this effect, the policy makers in the region are expected to negotiate with China to appreciate yuan.