Thread: Euro Zone Defies the Doomsayers

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August 14, 2013, 1:02 p.m. ET

Euro Zone Defies the Doomsayers

Region Has Escaped From Six Quarters of Recession and, for Now, Investors Should Welcome the Return to Growth

• By
• RICHARD BARLEY
• CONNECT

For an economy whose prospects have been so roundly written off so many times, the euro zone is doing surprisingly well.

Second-quarter growth came in at 0.3%, reversing the first quarter's downturn, and beating economists' expectations. Even more startlingly, two euro-zone countries, Germany and Portugal, may end up being the fastest-growing economies in the Group of Seven and the Organization for Economic Cooperation and Development, respectively, in the second quarter, Berenberg Bank notes. As ever with Europe, there are plenty of caveats. But don't underestimate the importance of the direction of travel.



Yes, Germany is leading the recovery, growing 0.7% in the second quarter, helped by a bounce from a cold winter that held back activity early this year. Yes, the surprisingly strong growth of 0.5% in France may fade, given that it was driven by consumption and inventories. Yes, there are special factors that explain Portugal's stunning quarterly growth of 1.1%, the first positive result since 2010, including the timing of Easter and a big boost to fuel exports. And yes, Italy, Spain and the Netherlands are still in recession.

But for the euro zone, the bigger picture matters. Growth in Germany was driven by domestic demand; exports are helping shield Southern Europe from deeper domestic downturns. Even Greece's economy may be close to turning the corner.

Southern Europe has begun to close the gap with the North in terms of competitiveness. More structural reforms are needed, but significant progress has been achieved.

With Markit's composite euro-zone purchasing managers' index finally rising back above 50 in July, the third quarter has got off to a good start. Financial tensions continue to ease: Spanish and Italian bond yields are falling again. And while the European Central Bank may have to back up its guidance that rates will remain low for an "extended period," low inflation gives that pledge credibility.

There will be plenty of reasons to worry about the euro zone to come: high levels of unemployment, Italian and Spanish politics, German elections, continued bank deleveraging and rumblings on Greek debt restructuring. Neither investors nor policy makers should be complacent. But growth, if it can be sustained, can ease some of those worries.

Write to Richard Barley at richard.barley@wsj.com

http://online.wsj.com/article/SB10001424127887323455104579012790266431408.html

The IMF has pumped a TON of freshly printed money into the Eurozone.

Euro Zone Economy Grew 0.3% in 2nd Quarter, Ending Recession

New York Times‎ - 21 hours ago

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