European economy grows

The economy of the European Union returned to growth for the first time during the third quarter of 2009 after five quarters of falling output. It shrank a record 2.5 percent in the first quarter of the year.

Gross domestic product grew 0.4 percent in the 16 countries which share the Euro as a currency and 0.2 percent in the 27 countries which comprise the European Union.

Germany and France led the European Union out of recession with surprise gains in the second quarter of this year. The German GDP has continued to grow by 0.7 percent during the third quarter of this year, and the French GDP by 0.3 percent.

But consumers have been protected by extremely low interest rates, and it remains to be seen what will happen as stimulus programs expire.

Emerging markets compensating for global loss

Norbert Walter, chief economist at the Deutsche Bank in Frankfurt, said the third quarter results this year are not surprising as they can be traced back to decisions in financial politics such as car-scrapping subsidies in Germany or the lowering of sales taxes in Britain. Funds for Germany's car-scrapping subsidy were depleted by early September.

"What is positive is the visible and recognizable recovery of the emerging markets in Asia," he told Deutsche Welle. "Asian countries were not afflicted by the financial crisis. Practically none of the banks there lost money the way European and American banks did. And these countries rarely have high national deficits, so they can compensate for international weakness through strong impulses in financial politics. This applies to China, especially."

Although developing markets grew worldwide and positively influenced Western economies, their value added to the global economy is not enough to compensate for losses in Europe and the United States, according to Walter.

"I believe that many industrialized countries will have to come to terms with weak growth in early 2010, if any at all," he said.

Britain and Spain continue to see output fall

In Britain and Spain, economies have continued to shrink. The British GDP dropped by 0.4 percent and the Spanish GDP by 0.3 percent.

Sandra Schmidt of the Centre for European Economic Research in Mannheim said, while recession in Britain and Spain is not over, both countries were already lagging during recovery in the second quarter of the year.

"While results there continue to be negative, they are less negative than they were in previous quarters," she said. "The question now is how the economy will recover as support mechanisms expire. I believe the positive trend will continue, but that isn't to say it will be fast."

Britain and Spain are affected by structural problems which may take years to correct, according to Deutsche Bank's Walter. Britain must come to terms with the shrinking of its financial sector, which is considerably larger than that of Germany or France, and Spain's construction industry has been hit by collapsing real estate prices due to a shrinking population, he said.

Author: Gerhard Schneibel

Editor: Susan Houlton