EU economy out of recession, but recovery slow

13:17, November 20, 2009      

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The European Union (EU) and eurozone economy returned to growth in the third quarter of this year, joining the United States and Japan in climbing out of recession.

It is additional good news for the world economy, which plunged into recession more than one year ago.

In its latest report released last week, the EU's statistics office Eurostat said its primary estimates indicate the gross domestic product (GDP) in the eurozone increased by 0.4 percent while the GDP in 27 EU countries gained by 0.2 percent in the third quarter.

According to the report, Germany's economy grew by 0.7 percent and France's expanded by 0.3 percent in the three months following weak growth in the previous quarter.

However, the economic increase was not as positive as the 0.6 percent that most economists had predicted for the eurozone. The reason the growth in the bloc's major economies fell short of forecasts was largely due to weak household spending.

Still, the third-quarter rise in eurozone output was the first in six quarters and brought Europe's sharpest recession since World War II to an end.

The return to growth has been hard-won. Since the meeting of leaders from the G20 countries in Washington one year ago, the European countries, along with other major economics, adopted a series of economic stimulus measures.

The central banks in both the eurozone and Britain cut short-term interest rates to their historically lowest levels early this year and kept the rates unchanged until now.

They also worked out unconventional monetary policies to increase the direct money supply to the market through programs of asset purchase -- the so-called Quantitative Easing (QE).

The EU also introduced a 200-billion-euro (296 U.S. dollars) economic stimulus plan to pull the economy out of recession. That plan was followed by many other stimulus measures in the EU's member countries.

Massive economic stimulus plans with supportive monetary policies in Europe prevented a further economic decline after the EU economy suffered the sharpest downturn in the first three months of this year and also helped lead the EU economy to the road of recovery.

In the second quarter of this year, two major economies in the eurozone -- Germany and France -- returned to economic growth, though the recovery was weak. That growth, however, paved the way for the all-round recovery of the EU region in the third quarter.

Many analysts, though, predict that the EU economic recovery would be slow and sluggish.

The International Monetary Fund said in its latest World Economic Outlook released in October that the economic rebound in Europe was likely to be slow.

It predicted that the economy in the eurozone and Britain would contract by 4.2 percent and 4.4 percent respectively in 2009 and grow by 0.3 percent and 0.9 percent in the next year.

The IMF said the largely bank-based financial system would take time to fully resume its intermediating role, although financial market conditions in the region have improved, and tight credit conditions would limit private investment and spending.

Soaring unemployment could also hinder the pace of EU economic recovery.

The jobless rate in the eurozone and EU hit 10-year highs of 9.7 percent and 9.2 percent respectively in September and could possibly exceed 10 percent in the next several months. The high jobless rates will surely limit the gains of private spending, one of the major engines behind the EU economy.

Moreover, when and how to exit from the extraordinary economic stimulus measures implemented by many economies is another difficult test for the governments in the EU countries in the coming quarters.

If they exit too soon, the fragile world economy could easily deteriorate and lapse into another round of contraction. Exiting too late would increase the risks of inflation and soaring government debt, posing new dangers for long-term economic growth.

Source: Xinhua
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