Germany, France beat growth expectations

Europe’s two largest economies expanded more than economists predicted in the second quarter, helping to pull the euro area out of its longest-ever recession.

German gross domestic product rose 0.7 per cent from the first quarter, when it stagnated, the Federal Statistics Office in Wiesbaden said today. The French economy grew 0.5 per cent, posting its best quarterly expansion since president Francois Hollande came to power in May 2012. Economists predicted growth of 0.6 per cent and 0.2 per cent, respectively, according to Bloomberg News surveys.

The euro rose after the reports and traded at $1.3271 at 8.40am in Frankfurt. Futures on the Euro Stoxx 50 index increased 0.3 per cent.

Faster growth in the region's two largest economy coaxed the currency area out of a six-quarter slump, supporting the European Central Bank's prediction of a gradual recovery in the second half. At the same time, unemployment in the euro area remains at a record high of 12.1 per cent and the Bundesbank expects a slowdown in Germany later this year.

“We’ve seen many positive surprises in the second quarter and data this morning confirm that the euro zone is out of recession,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt. “There’s no guarantee that there won’t be setbacks in the future. But the ECB’s baseline scenario is materialising and that means rate cuts are off the table for now.”

The Frankfurt-based central bank pledged last month to keep interest rates low for an extended period and left its benchmark rate at a record low of 0.5 per cent. Second-quarter growth in Germany was primarily driven by domestic demand, the statistics office said. Private and government consumption both increased from the first quarter, investment activity picked up and net trade also contributed to growth, it said.

France’s expansion was lifted by a recovery in consumer spending and exports, the national statistics office Insee said. Economic confidence in the euro area increased for a third month in July. Manufacturing expanded for the first time in two years, according to a survey among purchasing managers by London-based Markit Economics.

While the overall outlook has improved, the recession has left almost one in four young people in the region without a job, and parts of southern Europe remain mired in a slump.

Economists predict the 17-nation euro economy expanded 0.2 percent, according to a separate Bloomberg News survey. - (Bloomberg)