The euro-zone economy emerged more strongly than expected from its longest postwar contraction in the three months to June, but a resolution to its banking and fiscal crises remains a distant prospect.
The European Union's official statistics agency Wednesday said the combined gross domestic product of the currency area's 17 members was 0.3% higher than in the first three months of the year, but 0.7% lower than in the second quarter of 2012. It was the fastest quarterly expansion since the first three months of 2011.
The median forecast offered by 19 economists who were surveyed by The Wall Street Journal last week was for a quarter- to-quarter expansion of 0.2%, and a year-to-year decline of 0.8%.
The euro zone's return to growth after six straight quarters of contraction was driven by Germany, its strongest and largest economy. It recorded the fastest expansion among large developed economies during the quarter.
The French economy also played its part, with a 0.5% expansion, according to statistics bureau Insee. But an even greater source of surprise was Portugal, where economic activity picked up by 1.1%--by far the strongest growth rate recorded in Europe.
Portugal is in the third year of an international bailout, and its economy hadn't grown since the fourth quarter of 2010. Its return to growth in such a decisive manner will encourage euro-zone policy makers to believe it can become financially self-reliant next year, as planned.
It may also ease pressure on Prime Minister Pedro Passos Coelho's government to soften austerity ahead of local elections in September. The economies of Austria, Estonia, Belgium, Slovakia and Finland also expanded.
The economies of Italy, Spain and the Netherlands contracted, but less sharply than in the first quarter. Cyprus's economy once again experienced the sharpest decline, with GDP down 1.4% on the quarter following a 1.7% drop in the previous period.
Although Eurostat didn't provide any more detail on the sources of growth, economists who examined national figures said the pickup appeared to have been driven by rising consumer demand and exports, with business investment yet to make a contribution.
European Commissioner for Economic and Monetary Affairs Olli Rehn welcomed the return to growth as a validation of the currency area's strategy for tackling its problems, but also warned against complacency.
"I hope there will be no premature, self-congratulatory statements suggesting the crisis is over," he said in a statement.
"We all know that there are still substantial obstacles to overcome.There is still a very long way to go before we reach our ultimate goal of a sustainable growth model that delivers more jobs."
The return to growth in the currency area should deliver a much-needed boost to household and business confidence, but the recovery is unlikely to be anything but modest.
Unemployment rates remain at record highs, bank lending to businesses is continuing to fall, and governments continue to cut spending in an effort to bring their rising debts under control.
And without strong growth, it will be difficult for the euro zone to bring its fiscal and banking problems to an end.
The currency area's expansion was weaker than that of other large developed economies. Measured in quarter-to-quarter terms, the U.S. economy grew 0.4% in the three months to June, while the economies of Japan and the U.K. each grew 0.6%.
The return to growth is unlikely to have an immediate impact on the European Central Bank's policy stance.
It has committed to keeping its benchmark interest rate at a record low for an extended period, and the expansion recorded in the three months to June was in line with its modest expectations.
But some economists believe that if the recovery proves stronger than expected, tensions around the maintenance of that forward guidance could quickly emerge.
"From the ECB's perspective we expect today's data to have no immediate impact on the...statement of forward guidance," said James Ashley, an economist at RBC Capital Markets. "But if our forecast for continued positive growth in subsequent quarters proves to be correct then there are prospects for a less unified governing council by year-end."
Germany's GDP, the broadest measure of goods and services produced across the economy, swelled 0.7% in the second quarter from the preceding period, in line with economists' forecasts. That equals annualized growth of 2.9%, the statistics office said.
By comparison, the U.S. economy expanded by an annualized 1.7% in the second quarter, while Japan's growth rate eased to 2.6%.
The data should give a fillip to German Chancellor Angela Merkel's conservative coalition, which already has a comfortable lead in recent opinion polls. Ms. Merkel later Wednesday will officially launch her election campaign, which will see her deliver almost 60 campaign speeches ahead of Sept. 22 polls.
While a pickup in German growth had been expected, the strength of the French economy's performance in the second quarter was a surprise. It is also a boost for French President Francois Hollande, who met with skepticism in the French press last month when he said the economic recovery had arrived.
The expansion in the euro zone's No. 2 economy followed two consecutive quarters of contraction, which is commonly defined as a recession. Economists polled by The Wall Street Journal had expected only a 0.2% quarter-on-quarter expansion in the second quarter.
Annualized French economic growth in the second quarter was 1.9%, according to calculations by J.P. Morgan economists. The euro zone's return to growth is likely to be particularly welcome news for neighboring nations for which the currency area is by far the most important export market.
Figures released Wednesday indicated some countries in central and Eastern Europe are already benefiting from the end of the euro zone's contraction.
The Czech Republic emerged from six quarters of contraction--its longest since the early 1990s--to record growth of 0.7% on the quarter, while Poland's growth rate doubled to 0.4%.
However, Hungary's economy slowed, Romania's growth rate was unchanged at a low 0.3%, and Bulgaria's economy contracted slightly.
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The European Union's official statistics agency Wednesday said the combined gross domestic product of the currency area's 17 members was 0.3% higher than in the first three months of the year, but 0.7% lower than in the second quarter of 2012. It was the fastest quarterly expansion since the first three months of 2011.
The median forecast offered by 19 economists who were surveyed by The Wall Street Journal last week was for a quarter- to-quarter expansion of 0.2%, and a year-to-year decline of 0.8%.
The euro zone's return to growth after six straight quarters of contraction was driven by Germany, its strongest and largest economy. It recorded the fastest expansion among large developed economies during the quarter.
The French economy also played its part, with a 0.5% expansion, according to statistics bureau Insee. But an even greater source of surprise was Portugal, where economic activity picked up by 1.1%--by far the strongest growth rate recorded in Europe.
Portugal is in the third year of an international bailout, and its economy hadn't grown since the fourth quarter of 2010. Its return to growth in such a decisive manner will encourage euro-zone policy makers to believe it can become financially self-reliant next year, as planned.
It may also ease pressure on Prime Minister Pedro Passos Coelho's government to soften austerity ahead of local elections in September. The economies of Austria, Estonia, Belgium, Slovakia and Finland also expanded.
The economies of Italy, Spain and the Netherlands contracted, but less sharply than in the first quarter. Cyprus's economy once again experienced the sharpest decline, with GDP down 1.4% on the quarter following a 1.7% drop in the previous period.
Although Eurostat didn't provide any more detail on the sources of growth, economists who examined national figures said the pickup appeared to have been driven by rising consumer demand and exports, with business investment yet to make a contribution.
European Commissioner for Economic and Monetary Affairs Olli Rehn welcomed the return to growth as a validation of the currency area's strategy for tackling its problems, but also warned against complacency.
"I hope there will be no premature, self-congratulatory statements suggesting the crisis is over," he said in a statement.
"We all know that there are still substantial obstacles to overcome.There is still a very long way to go before we reach our ultimate goal of a sustainable growth model that delivers more jobs."
The return to growth in the currency area should deliver a much-needed boost to household and business confidence, but the recovery is unlikely to be anything but modest.
Unemployment rates remain at record highs, bank lending to businesses is continuing to fall, and governments continue to cut spending in an effort to bring their rising debts under control.
And without strong growth, it will be difficult for the euro zone to bring its fiscal and banking problems to an end.
The currency area's expansion was weaker than that of other large developed economies. Measured in quarter-to-quarter terms, the U.S. economy grew 0.4% in the three months to June, while the economies of Japan and the U.K. each grew 0.6%.
The return to growth is unlikely to have an immediate impact on the European Central Bank's policy stance.
It has committed to keeping its benchmark interest rate at a record low for an extended period, and the expansion recorded in the three months to June was in line with its modest expectations.
But some economists believe that if the recovery proves stronger than expected, tensions around the maintenance of that forward guidance could quickly emerge.
"From the ECB's perspective we expect today's data to have no immediate impact on the...statement of forward guidance," said James Ashley, an economist at RBC Capital Markets. "But if our forecast for continued positive growth in subsequent quarters proves to be correct then there are prospects for a less unified governing council by year-end."
Germany's GDP, the broadest measure of goods and services produced across the economy, swelled 0.7% in the second quarter from the preceding period, in line with economists' forecasts. That equals annualized growth of 2.9%, the statistics office said.
By comparison, the U.S. economy expanded by an annualized 1.7% in the second quarter, while Japan's growth rate eased to 2.6%.
The data should give a fillip to German Chancellor Angela Merkel's conservative coalition, which already has a comfortable lead in recent opinion polls. Ms. Merkel later Wednesday will officially launch her election campaign, which will see her deliver almost 60 campaign speeches ahead of Sept. 22 polls.
While a pickup in German growth had been expected, the strength of the French economy's performance in the second quarter was a surprise. It is also a boost for French President Francois Hollande, who met with skepticism in the French press last month when he said the economic recovery had arrived.
The expansion in the euro zone's No. 2 economy followed two consecutive quarters of contraction, which is commonly defined as a recession. Economists polled by The Wall Street Journal had expected only a 0.2% quarter-on-quarter expansion in the second quarter.
Annualized French economic growth in the second quarter was 1.9%, according to calculations by J.P. Morgan economists. The euro zone's return to growth is likely to be particularly welcome news for neighboring nations for which the currency area is by far the most important export market.
Figures released Wednesday indicated some countries in central and Eastern Europe are already benefiting from the end of the euro zone's contraction.
The Czech Republic emerged from six quarters of contraction--its longest since the early 1990s--to record growth of 0.7% on the quarter, while Poland's growth rate doubled to 0.4%.
However, Hungary's economy slowed, Romania's growth rate was unchanged at a low 0.3%, and Bulgaria's economy contracted slightly.
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