In These New Times

German economy sparks hopes of EU recovery
LUCIA KUBOSOVA

27.07.2009 EU Observer
Fresh data on business sentiment in Germany have sparked hopes that Europe’s biggest economy may be on the path to recovery, while the latest figures from the UK have disappointed market insiders.

The closely watched business climate index by the Munich-based Institute for Economic Research (Ifo) rose to 87.3 points in July on Friday (24 July), improving for the fourth consecutive time after reaching a seven-month high in June.

“Firms are not so unhappy with the current business situation as they were the previous month. Those surveyed are, again, less skeptical about the coming six months. It looks as though the economy is gaining traction,” the institute said in press release.

The index – based on a survey of 7,000 German executives – comes following statistics earlier this month which suggested that industry output in the biggest economy of the 27-member EU grew at its fastest rate in 16 years in May.

“Germany has all of a sudden become the leader of the pack, showing stronger signs of stabilisation than most other euro zone countries,” economist Carsten Brzeski at ING Financial Markets commented for Forbes.

The German economy shrank by 3.8 percent in the first quarter of this year, its worst quarterly performance since reunification in 1990.

Several smaller EU member states, mainly in the Central and Eastern Europe, suffered due to lower business orders from the bloc’s economic motor. Any signals from Berlin are therefore closely watched in several other EU capitals.

Even Brussels rushed to comment on the positive results from Germany. “The worst might be behind us,” a spokeswoman of the European Commission, Katharina von Schnurbein, told a news conference on Friday.

According to a fresh Eurobarometer survey, a third of EU citizens feared they might lose their job due to the economic slump, mainly in Spain. People in the three Baltic states, Latvia, Lithuania and Estonia are the most concerned about the future developments of their countries’ economies.

UK still in the depressed mode

Unlike Germany, Britain is still mired in bad news – the country’s GDP dropped by 0.8 percent between this April and June and by 5.6 percent compared to the same period last year, according to an estimate by the UK’s Office for National Statistics.

It was the largest annual decline since records began in 1955 and larger than expected by analysts. Economists surveyed by Dow Jones Newswires had estimated a 0.3 percent quarterly decline and a 5.2 percent annual drop. On the positive side, the contraction was lower than the 2.4 percent seen in the first quarter.

“This is a massive setback for hopes that the UK economy could see growth again by the end of the year,” said Jane Foley, research director at Forex.com, told Market Watch website.

The decline in Britain’s output has been primarily driven by the financial services, the sector worst hit by the global credit crunch.