BRUSSELS (Reuters) - The economy of the 12-nation euro zone shrank in the second quarter of this year for the first time since the final quarter of 2001, but it's expected to gradually recover in coming months, reports showed Tuesday.
Europe's Economy Shrank in 2nd Quarter; Recovery Seen (Update1)
Sept. 9 (Bloomberg) -- Europe's economy shrank in the second quarter, only the second contraction since the euro's birth in 1999, as Germany and Italy slipped into recession and the French economy contracted more than forecast.
The $8 trillion economy of the dozen nations sharing the euro contracted 0.1 percent, the Luxembourg-based European statistics office said, revising an Aug. 14 estimate of stagnation. Growth may accelerate to as much as 0.6 percent by the fourth quarter, the European Commission said.
``The general economy hasn't been extremely healthy,'' said Bengt Halse, president of the European Association of Aerospace Industries, which represents companies such as European Aeronautic Defence & Space Co. and BAE Systems Plc. ``If the economy starts to show signs of rebound, which you can see now in certain instances, the aircraft industry will reflect that later.''
The European Central Bank's interest rate cuts, the euro's 7 percent drop against the dollar since May and an accelerating U.S. economy are fostering a recovery, indicators show. Business confidence in Italy rose the most in two decades in August and reached a 14-month high in Germany, the region's largest economy.
The commission left last month's forecasts for the second half unchanged, predicting growth between zero and 0.4 percent in the third quarter, and a rate of expansion between 0.2 percent and 0.6 percent in the fourth.
Travel Recovery
``The acceleration in growth predicted for the fourth quarter stems from the recent improvement in domestic retail confidence, as well as external factors,'' said the commission, the Brussels- based executive arm of the 15-nation EU.
Air France SA, Europe's second-largest airline, said air traffic improved in July and August after five months of declines. Club Mediterranee SA, Europe's largest resort operator, said reservations rose 11 percent in the past four weeks as concerns from stagnant economies, war and the SARS virus faded.
``There are tentative signs of a recovery, though its not going to be that meaningful just yet,'' said Trevor Williams, an economist at Lloyds TSB Group Plc in London. ``It won't be until the fourth quarter of next year, or 2005, before the euro zone will reach its average, long-run growth rate.''
Any recovery in Europe will lag that of the U.S., said Bank of France Governor Jean-Claude Trichet, who is scheduled to replace Wim Duisenberg as president of the ECB on Nov. 1.
U.S. Expansion
Growth in the U.S. economy, destination of about a fifth of Europe's exports, accelerated to an annualized rate of 3.1 percent in the second quarter. U.S. manufacturing grew last month at the strongest pace in eight months. Japan, the world's second-largest economy, is also gathering pace, expanding an annualized 2.3 percent in that period.
``Europe is just not economically vibrant at the moment,'' said Michael O'Leary, chief executive of Ryanair Holdings Plc, Europe's second-biggest low-cost airline.
The euro's 13 percent gain against the dollar in the last year has hurt companies such as Interbrew SA, the Belgian brewer of Stella Artois beer, which blamed the strength of the single currency for holding back profit growth in the first half.
As evidence stacks up that Europe's economy is lagging the U.S., the euro's strength is waning. Shares of exporters have risen on optimism the weaker euro will help them benefit from a U.S. recovery. Siemens AG, Germany's largest engineering company, has paced gains in the Dow Jones Stoxx 50, increasing 34 percent in the past three months. DaimlerChrysler AG, the world's fifth- largest carmaker, is up 32 percent in the same period.
Recessions
Porsche AG, the maker of the 911 sports car, said today sales in the year through July rose 15 percent to 5.6 billion euros ($6.2 billion) and said pretax profit rose ``clearly'' in the period. Stuttgart, Germany-based Porsche said it's optimistic that revenue will increase further this year.
Italy, the third largest economy in the euro region, fell into its first recession in more than a decade in the first half. Germany and the Netherlands were also in recession and France's economy contracted 0.3 percent in the second quarter.
The ECB last week lowered its internal growth forecasts to 0.4 percent this year and 1.5 percent in 2004. The bank also raised its expectations for inflation, limiting its room to add to the three interest rate reductions of the past nine months. In August, inflation rose above the bank's 2 percent limit for the first time in four months.
Investors don't expect the ECB to cut rates again this year, interest-rate futures contracts show. The yield on the three-month contract for December settlement was at 2.17 percent at 12:15 p.m. in Brussels, compared with a three-month money market rate of 2.13 percent.
Last Updated: September 9, 2003 06:17 EDT
http://quote.bloomberg.com/apps/news?pid=10000100&sid=aKhZRi0xdQ0g&refer=germany
I see that the US is not the only ones losing their shirts to Cina and India because of free trade.
Bush is in trouble. Ooops wrong thread.