Europe slowly, cautiously edges past recession
German growth and French bounce back credited for recovery, but policy makers warn economic crisis far from over
MADRID— Minube, a travel startup on the outskirts of Madrid, is doing something that many Spanish companies haven’t thought about for years: It’s hiring. The company, which sells bookings as it helps travellers share their experiences using social media, has nearly doubled its head count from17 at the end of last year to 30. Business is booming as customers come in from across Europe — including some places hardest hit by Europe’s economic crisis. “We’re finally starting to see a bigger growth curve in Spain, and the strong growth in Italy has been a surprise,” Minube’s co-founder, Pedro Jareno, said. “The improvements we are starting to see in the market are constant.” That brighter — or less gloomy — backdrop was confirmed in figures Wednesday, which showed that the longest-ever recession to afflict the eurozone came to an end in the second quarter of the year. Eurostat, the European Union’s statistics office, said the 17 EU countries that use the euro saw their collective economic output increase by 0.3 per cent in the April to June period from the previous quarter. That’s the first quarterly growth since the eurozone slipped into recession in the last three months of 2011. The ensuing recession of six quarters was the longest since the euro currency was launched in 1999. The improvement made up for the previous quarter’s equivalent decline and was moderately better than the 0.2 per cent anticipated in the markets. Growth, however anemic, had been predicted by many economists following an easing in market concerns over Europe’s debt crisis over the past year and record low interest rates from the European Central Bank. The eurozone’s growth, which translates to an annualized rate of about 1.3 per cent, is still well below the 1.8 per cent the U.S. enjoyed during the second quarter. The wider 27-country EU, which includes noneuro countries such as Britain and Poland, also emerged from its own, milder recession, and like the eurozone is also growing at an annualized rate of around 1.3 per cent. Growth in Europe provides a boon to the global economy. The EU, which now totals 28 following Croatia’s accession in July, has a population of around 550 million and its annual gross domestic product stands at around $17.3 trillion — both more than the U.S., which has GDP of $16.6 billion for 315 million people. The EU’s recovery marks the first time since a brief period in 2011 that the four major pillars of the world economy — the U.S., China, Japan and Europe — are growing at the same time. The figures will be greeted with a sigh of relief by Europe’s policy-makers, who have spent nearly four years grappling with a debt crisis that has threatened the very future of the euro. But they were not ready to declare victory, aware that this is only the start of what is expected to be a slow and uneven recovery. “This slightly more positive data is welcome — but
“This slightly more positive data is welcome — but there is no room for any complacency whatsoever. I hope there will be no premature, self-congratulatory statements suggesting ‘the crisis is over.’ ” OLLI REHN EU MONETARY OFFICIAL
there is no room for any complacency whatsoever,” Olli Rehn, the EU’s top monetary official, said in his blog after the release of the figures. “I hope there will be no premature, self-congratulatory statements suggesting ‘the crisis is over.’ ”
The improvement was largely due to solid growth of 0.7 per cent in Germany and a surprisingly strong 0.5 per cent bounceback in France following two quarters of negative growth.
Aside from Europe’s top two economies, there were signs of stabilization elsewhere, notably in Portugal, which expanded by a surprising 1.1 per cent. Spain and Italy saw the pace of their economic contractions slow.
There was even evidence that the recession in Greece, the country at the heart of Europe’s debt crisis, is easing, too.
Eurostat doesn’t publish quarterly figures for Greece. It only has annual comparisons and they showed that the yearon-year contraction eased to 4.6 per cent in the second quarter from 5.6 per cent in the first.
Major European companies have benefited from the more stable economy.
ArcelorMittal, the world’s largest steelmaker, says the worst is over and that European demand is finally on the rise again. Many companies, however, are still relying on foreign markets to drive profits. Big exporters, like German carmaker BMW, are selling a lot in China and pushing into fast-growing emerging markets.
The recovery in Europe, the world’s largest trading bloc, is expected to cause an increase in global trade levels later this year as exporters like Germany gather pace and Europeans buy more products from companies in the U.S., Japan and elsewhere.
Despite that cautious note of optimism, analysts said the eurozone still has a long way to go before it can say it has proved the skeptics wrong.
Europe’s indebted governments still face years of spending cuts and tax increases and many, notably Greece and Spain, are weighed down by record-high unemployment of over 25 per cent.
A full recovery across the eurozone is not expected before 2015. Greece Greece’s economy contracted 4.6 per cent in the second quarter compared with a year earlier. While that is slightly less than in the previous quarter, it still leaves the country in an economic hole that some have termed a depression. The official forecast is that growth will only return in 2014, and it will take years before the economy reaches precrisis levels.
Greece triggered Europe’s debt crisis in October 2009, when it admitted it had under-reported its budget deficit for years. It was the first of the continent’s economies to get an international bailout.
The policy of spending cuts and tax increases demanded by creditors to cure public finances has reduced the deficit but savaged the economy and society.
The economy has shrunk by roughly 24 per cent since 2008, business bankruptcies have skyrocketed and unemployment is at a record 27.6 per cent — and 64.9 per cent for people under 25.
The statistics bear some resemblance to those during the Great Depression in the U.S., when gross domestic product fell 27 per cent in 1929-1933 and unemployment climbed to more than 20 per cent.
Although there’s no fixed definition of depression, economist Barry Bosworth at the Brookings Institution says Greece qualifies because of the unusual depth and length of its downturn.
“It goes way beyond anything that looks like a recession,” he said. “It’s absolutely appropriate to refer to Greece as in a depression.” Spain The economy shrank in the second quarter by 0.1 per cent from the quarter before, but the contraction was better than the 0.5 per cent fall recorded in the first three months of 2013.
The country has been stuck in recession for most of the past four years after its property market collapsed, causing several banks to fail and require bailouts.
Spain looks like it could finally post some quarterly economic growth before the end of the year.
Nonetheless, Spain has an unemployment rate of 26.3 per cent, which the International Monetary Fund forecasts will only fall slightly over the next two years. Italy Italy’s economy shrank by less than expected in the second quarter. The 0.4 per cent decline compared with a quarterly rate of 0.6 per cent in the first quarter. Italy has also embarked on the austerity path to control its high public debt, which has grown to 130 per cent of annual economic output.
The economy has contracted for eight straight quarters, a record, and unemployment is at 12 per cent. Portugal The country returned to growth in the April-June quarter with a robust figure of 1.1 per cent from the quarter before, after contracting for 10 straight quarters. Yet the country has a long way to go to reduce unemployment of 17.4 per cent and to generate enough growth to repay debts that fall due in coming years.
Portugal needed a bailout in 2011 after a decade of meagre growth and mounting debts. Cyprus The Mediterranean island country needed a bailout this year after its banks collapsed because of losses on defaulted Greek government bonds. A part of deposits at its two largest banks were seized to help pay for the bailout.
The banking collapse is expected to contribute to a big drop in investment and spending.
Cyprus’ international creditors project that its economy will shrink by a cumulative 13 per cent by the end of 2014. Most analysts predict it will be worse.