German, French Growth Helps Euro-Region Recovery

Europe’s two largest economies expanded more than economists predicted in the second quarter, helping to pull the euro area out of its longest-ever recession.

German gross domestic product rose 0.7 percent from the first quarter and the French economy expanded 0.5 percent, the countries’ national statistics offices said today. Economists predicted growth of 0.6 percent and 0.2 percent, respectively, according to Bloomberg News surveys. GDP results for the euro-area will be published at 11:00 a.m. in Luxembourg.

The euro rose after the reports and traded at $1.3270 at 9:50 a.m. in Frankfurt. The German benchmark DAX index was little changed at 8419.50 points.

Faster growth in Germany and France probably coaxed the currency bloc out of a six-quarter slump, supporting the European Central Bank’s prediction of a gradual recovery in the second half. At the same time, unemployment in the euro area remains at a record high of 12.1 percent and the Bundesbank expects a slowdown in Germany later this year.

“Thanks to Germany, the entire euro zone should have left the record-long recession,” said Carsten Brzeski, senior economist at ING Groep NV in Brussels. “Of course, the euro zone still has a long way to go before positive growth numbers can honestly be called recovery but relief should stand above skepticism, at least for one day.”

Austria, Netherlands

Austria’s economy grew 0.2 percent in the three months through June, according to the Wifo economic research institute, while Dutch GDP shrank 0.2 percent, the national statistics bureau said today.

Second-quarter growth in Germany was primarily driven by domestic demand, the statistics office said. Private and government consumption both increased from the first quarter, investment activity picked up and net trade also contributed to growth, it said.

Commerzbank AG, Germany’s second-largest bank, raised its 2013 growth forecast for the country to 0.4 percent from 0.2 percent, citing strong second-quarter performance. The Bundesbank predicts an expansion of 0.3 percent this year and 1.5 percent in 2014.

French Growth

France’s quarterly expansion, the best since President Francois Hollande came to power in May 2012, was lifted by a recovery in consumer spending and exports, the national statistics office Insee said.

Hollande, who is battling unemployment at a 14-year high and struggling to contain the budget deficit, began trumpeting an exit from recession last week in a bid to instill confidence among consumers and executives. The Socialist president will need the economy to pick up substantially if he is to keep a pledge to reverse a 26-month increase in jobless claims.

Economists predict the 17-nation euro economy expanded 0.2 percent in the second quarter, according to a separate Bloomberg News survey, supporting the European Central Bank’s prediction of a gradual recovery in the second half.

ECB President Mario Draghi last month pledged to keep interest rates low for an extended period and left the central bank’s benchmark rate at a record low of 0.5 percent.

“The ECB’s baseline scenario is materializing,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt. “That means rate cuts are off the table for now.”

Economic confidence in the euro area increased for a third month in July and manufacturing expanded for the first time in two years, according to a survey among purchasing managers by London-based Markit Economics. While the overall outlook has improved, the recession has left almost one in four young people in the region without a job, and parts of southern Europe remain mired in a slump.

German Election

The health of the German economy bolsters the prospects of Angela Merkel winning a third term as chancellor in a general election next month. Under her watch, unemployment dropped to a 20-year low, the budget deficit has been cut close to zero and domestic consumption has become more important as a pillar for economic growth.

Less than six weeks ahead of the Sept. 22 election, Merkel’s Christian Union bloc has 41 percent support among voters, according to a weekly Emnid poll for newspaper Bild am Sonntag, compared with 25 percent for challenger Peer Steinbrueck’s party, the SPD.

“The return to strong growth comes timely ahead of the elections for Chancellor Merkel,” said Christian Schulz, senior economist at Berenberg Bank in London. Today’s GDP numbers “give evidence that Merkel’s European strategy is working and should boost her coalition’s re-election chances.”

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