Euro area exits record slump led by largest economies

The euro area’s economy emerged from a record-long recession in the second quarter, led by Germany and France, amid the first sustained period of financial-market calm since the start of the debt crisis.

Gross domestic product in the 17-nation euro area rose 0.3% in the April-June period after a 0.3% contraction in the previous three months, the European Union’s statistics office in Luxembourg said today. That exceeded the median estimate of 0.2% growth in a Bloomberg News survey of 41 economists and brought to a close six straight quarters of contraction, the longest slump since the euro’s debut in 1999.

Germany and France, the euro area’s two largest economies, both showed faster-than-projected expansions in the quarter. While the overall outlook has improved, the recession pushed the unemployment rate to a record and parts of southern Europe remain mired in a slump, with more than half of young people in Spain and Greece out of work.

“We’re not seeing a recovery, it’s only a stabilization,” said Sylvain Broyer, Chief Eurozone Economist at Natixis in Frankfurt. “What we need is a pick-up in productive investment and I don’t see that yet. You would need a good three to four quarters of positive growth in the euro area to expect the unemployment rate to edge down.”

European Stocks

European stocks rose for a fifth day after the report, extending an 11-week high, with the Stoxx Europe 600 Index up 0.36% to 308.91 at 3:49 p.m. in London. The Swiss franc slid to the weakest in a month against the euro amid lower demand for the safety of the Swiss currency currency. The euro was stable at $1.3264 and 130.25 yen.

In Germany, GDP increased 0.7% in the second quarter, more than the 0.6% gain forecast by economists. The French economy expanded 0.5% after two quarters of contraction. Still, at least four of the euro area’s 17 member countries remain in recessions, including Italy and Spain.

“This slightly more positive data is welcome, but there is no room for any complacency whatsoever,” EU Economic and Monetary Affairs Commissioner Olli Rehn said in a blog post. “A sustained recovery is now within reach, but only if we persevere on all fronts of our crisis response.”

The European Central Bank has cut interest rates to a record low and pledged to keep them there or lower for an “extended period” to bolster the economy. With the jobless rate at 12.1%, the highest since the euro’s inception, ECB President Mario Draghi this month described progress as “tentative.”

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