Recession is ending in France and Germany - International

at a foundry in Schmiedeberg, in eastern Germany.



Aug. 14 (Bloomberg) -- Germany and France are hauling Europe out of its worst recession since World War II, aiding a global economic recovery.

The euro region’s two largest economies, among the nations labeled “Old Europe” by former U.S. Defense Secretary Donald Rumsfeld in 2003, unexpectedly returned to growth in the second quarter. That cut the drop in the 16-nation bloc’s gross domestic product to just 0.1 percent, helping it outperform the U.S. and the U.K.

“It’s France and Germany that are pushing things up,” said Erik Nielsen, London-based chief European economist at Goldman Sachs Group Inc., which now predicts euro-region growth of 0.5 percent in the third quarter instead of stagnation. “But the recovery is still fragile, and it will be at least a year before the European Central Bank raises interest rates.”

Global stimulus measures to battle the deepest slump since the Great Depression have boosted demand for European exports, and government packages are supporting spending at home. The danger is that the rebound will run out of steam as those policies expire.

German Chancellor Angela Merkel, who faces national elections next month, has committed 85 billion euros ($121 billion) to revive the economy. French President Nicolas Sarkozy’s stimulus package is worth about 30 billion euros.

Both countries have turned to vehicle-scrapping subsidies as one way of encouraging consumers to spend.