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Eurozone Escapes Recession On Exports, Demand


Strong recovery in domestic demand and exports helped the euro area economy to exit its longest recession on record, as initially estimated, during the second quarter.

Retail turnover data, released today, showed a marginal recovery in consumer spending in July driven by a rebound in food sales. Elsewhere, the Purchasing Managers' survey results confirmed that economic recovery is gaining traction into the third quarter.

The Eurozone private sector expanded at the fastest pace in more than two years during August with strong support from Germany. While Italy and Spain both moved out of contraction zone, France remained in negative territory, survey data revealed.

Gross domestic product expanded 0.3 percent quarter-on-quarter, in line with flash estimate, latest figures from Eurostat showed Wednesday. The contraction for the first quarter was revised down to 0.2 percent from 0.3 percent.

The second quarter figure was the biggest since the start of 2011, when GDP grew 0.8 percent. The 17-nation economy entered the recession in the first quarter of 2012 and remained in negative zone until the first quarter of 2013.

On a yearly basis, GDP dropped 0.5 percent, instead of the 0.7 percent fall estimated on August 14, it said.

The expenditure side breakdown of GDP showed a broad-based recovery among all sub-components. Household spending gained 0.2 percent sequentially, nullifying last quarter's 0.2 percent fall. After declining 2.2 percent in the first quarter, investment grew 0.3 percent.

Government spending advanced 0.4 percent, following nil growth in the preceding quarter. Exports were up 1.6 percent versus a 1 percent drop a quarter ago. Similarly, imports gained 1.4 percent after falling 1.1 percent.

Another report from Eurostat said retail sales rose 0.1 percent in July from a month earlier, when it fell 0.7 percent. Sales were forecast to grow by 0.2 percent.

Sales of food, drinks and tobacco increased 1 percent month-on-month, which was partially offset by a 0.4 percent drop in non-food sales.

Year-on-year, retail sales declined 1.3 percent in July. This was faster than a 1.1 percent fall reported in June and a 0.3 percent drop expected by economists.

According to the Markit PMI survey, the second consecutive expansion in business activity was mainly driven by the upturn in manufacturing. The service sector, at the same time, moved back into growth territory for the first time in just over one-and-a-half years.

The final composite output index rose to 51.5 in August from 50.5 in July. But it was slightly below the flash estimate of 51.7. The services PMI climbed to 50.7 from 49.8 in July. The earlier flash estimate for August was 51.0.

Looking forward, Jonathan Loynes at Capital Economics said more timely indicators released today suggest that Eurozone has continued to expand in the third quarter, albeit at a modest pace.

However, with the consumer outlook still weak, growth is likely to remain well below the rates needed to bring unemployment sharply lower or to address the indebted countries' fiscal problems, the economist said.

With Eurozone exiting recession and August survey evidence showing further improvement, there seems little doubt that the European Central Bank will keep interest rates unchanged at 0.50 percent at the policy meeting on Thursday, said IHS Global Insight's Chief U.K. Economist Howard Archer.

In its Interim Economic Assessment on Tuesday, the Organization for Economic Cooperation and Development said the euro area as a whole is no longer in recession. The Paris-based think tank urged Eurozone to take effective policies to avoid high unemployment rates getting entrenched even as a recovery takes hold.

At an annual conference in Brussels today, President of the European Council Herman Van Rompuy reiterated that the "existential crisis" of the Eurozone is over.

"But the economic crisis, that of growth and employment, is still with us," he added. So jobs and growth remain the top priority, he said.

by RTTNews Staff Writer

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