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November 14, 2009

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Eurozone joins US and Japan to emerge out of recession

THE 16-country eurozone has officially joined the United States and Japan out of recession, after figures yesterday showed its economy grew by 0.4 percent in the third quarter from the previous three month period.

However, the rise reported by the European Union's statistics office Eurostat was not as large as the 0.6 percent most economists had been predicting, as growth in the bloc's major economies fell short of forecasts. With a rebound in exports partially offset by weakness in household spending, Germany's economy grew by 0.7 percent and France's expanded by 0.3 percent.

Still, the third-quarter rise in eurozone output was the first in six quarters and brings to an end Europe's sharpest recession since World War II when demand for its high-value products fell off a cliff.

The recession was particularly savage at the turn of the year. The 1.8 percent quarterly decline recorded in the fourth quarter of 2008 was followed by an even bigger 2.5 percent drop in the first quarter of 2009. In the second quarter this year, output fell a modest 0.2 percent.

The scale of the recession is clearly visible in the annual comparisons. Despite the third quarter increase, eurozone gross domestic product was 4.1 percent lower, a modest improvement on the 4.8 percent slide recorded in the second quarter.

The euro area suffered badly in the global recession even though its banks were not at the epicenter of the financial crisis that triggered the downturn. However, institutions like the International Monetary Fund have warned that the region's recovery will be slow if policy makers don't do more to sort out problems in the financial sector.

And with banks not lending to households and businesses like they used to, growth is not expected to return to pre-crisis levels for a while yet.

"The region is at least out of recession and still on track to grow by a reasonably solid 1.5 percent odd next year but there is scant evidence yet of the pick-up in domestic demand needed to sustain a stronger recovery," said Jonathan Loynes, chief European economist at Capital Economics.

Some countries actually remain in recession. Figures on Thursday showed Spain's economy contracted 0.3 percent in the third quarter as it continued to reel from the collapse of its property market.


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