Europe's economy recovers on stimulus

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(Agencies)
Updated: 2009-09-26 00:49

PARIS: When the recession hit last year, European governments were at odds over how to coordinate their fight against the global crisis. Despite that initial dissonance, the countries sharing the euro now seem to be heading toward recovery at a surprisingly similar pace.

Economists say fiscal and monetary boosts across the zone made the difference in helping to pull the continent from its the worst recession in the postwar era.

Signs of a burgeoning recovery have been showing up in indicators across Europe in recent weeks. Manufacturing orders, purchasing managers indices, exports and the European Commission's own economic sentiment indictor have all turned positive. The euro zone's major economies, Germany and France, have posted a return to economic growth.

"There is no mistaking the message emitted by the short-term economic indicators: the euro zone economy moved back from contraction to expansion this summer," Commerzbank economist Christoph Weil wrote in a recent report. "The Euro zone recovery is the real McCoy," he wrote.

Another sign that things might finally be returning to normal came Friday in Germany, the euro zone's largest economy, where October consumer confidence data showed signs of economic recovery were offsetting fears of unemployment.

"The future outlook of consumers is becoming increasingly optimistic, with economic expectations rising for the sixth time in a row," the Nuremberg-based GfK market research group said in its report.

There was little of this cross-continent optimism only a few months ago, when EU members' go-it-alone responses to the crisis lead to charges of xenophobia and protectionism. EU Commission President Jose Manuel Barroso also weighed in with a vigorous warning against economic nationalism. The appeals appeared to be a criticism and rejection of French President Nicolas Sarkozy's moves to shield French companies in the wake of the crisis.

Protectionism worries still exist, some directed at Germany for sponsoring Magna International Inc.'s takeover of GM subsidiary Adamp Opel GmbH. But economists across Europe credit the turnaround to the massive fiscal stimulus measures introduced in the wake of last year's financial crisis - in particular, the cash for clunkers programs to get people buying cars.

"The fiscal stimulus, no question about that," said Gilles Moec, senior European economist at Deutsche Bank in London. He cited various "cash for clunkers" programs in France, Germany and elsewhere, which gave car buyers incentives to trade in old, polluting vehicles for newer, cleaner models. That revitalized a European new car market that had all but stalled.

Stimulus measures such as this "had quite a noticeable impact on industrial output and gross domestic product in the second quarter, for instance in France and Germany," Moec said.

The European Commission said early this month that the euro zone and the 27-nation EU likely pulled out of recession in the third quarter. Germany and France kicked off the trend by posting 0.3 percent growth in the second quarter.

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