By ADRIAN LOWCOCK 13/08/2009
Today, France and Germany published data showing that their economies both grew by 0.3% in the last quarter to June 2009, bringing an end to a year long recession in Europe’s two largest economies. The data has surprised analysts who were expecting further declines before seeing signs of any growth.
The announcement follows yesterday’s quarterly inflation statement published yesterday by the Bank of England in which the Governor, Mervyn King, effectively stated that the recession was nearly over in the UK.
Whilst economic activity appears to be recovering from the big falls we saw towards the end of 2008 and the start of 2009, signs of growth do not signify a return to the way things were before the credit crunch. Indeed, European industrial production rose 0.5% in May but it still remains 17% lower than a year ago and puts into context a rise 0.3% in GDP; meaning there is still a long way to go before economies return to their pre-credit crunch state(s).
A sustainable recovery will be dependent on consumer spending remaining robust and unemployment not rising further than predicted; quantitative easing (QE) is likely to assist in this respect, although the impact and timing of this is still uncertain, particularly when aligned against the prospect of spending cuts, higher taxes, weak balance sheets amongst banks and consumers and the potential for rising interest rates as QE is eased / unwound. This suggests to us that any economic recovery could be relatively feeble and potentially short lived.
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