Analysis: One swallow doesn't make a summer for euro zone

Thu Aug 15, 2013 10:42am EDT
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By Alan Wheatley, Global Economics Correspondent

LONDON (Reuters) - The cheery freeze frame of the euro zone economy last quarter is no guarantee of a happy ending to what has been a horror movie for most of the single currency bloc since the onset of the great financial crisis.

The return to growth, albeit of just 0.3 percent between the first and second quarters, is unalloyed good news for Europe and the world after 18 months of contraction.

But the recovery is vulnerable to external shocks and too weak yet to make a difference to two of the major issues hanging over the euro zone: record unemployment and the sustainability of the area's public and private debt.

Quarterly growth of 0.7 percent in Germany and 0.5 percent in France, the bloc's two biggest economies, was faster on an annualized basis than in the United States, whose economy expanded 1.7 percent in the second quarter using that calculation.

Context counts, however. Inflation-adjusted U.S. output is about 5 percent higher than it was in the first quarter of 2008. Households have acted swiftly to pay down debt and the housing market is enjoying a brisk upswing. Growth has responded, even if the recovery has been weak by historical standards.

The euro zone, by contrast, is still in catch-up mode. Gross domestic product remains 3 percent below the peak reached five years ago and, on current trends, is unlikely to regain that high water mark until the middle of 2015 at the earliest, according to Jefferies, an investment bank, in London.

Mirroring the unused resources in the economy, unemployment is a record high 12.1 percent.

"Europe is a long way behind the U.S. in the cycle. We had a decent Q2 - better than expected, for sure - but it's still very early days," said Marchel Alexandrovich, a Jefferies economist.   Continued...

A picture illustration taken with the multiple exposure function of the camera shows a one Euro coin and a map of Europe, January 9, 2013. REUTERS/Kai Pfaffenbach