Revista-E

BRUSSELS - Plunging inventories and private investment kept the euro zone in recession in the second quarter, data confirmed on Wednesday, but with the worst seemingly over, growth is seen resuming in the third quarter.

The European Union statistics office Eurostat confirmed its earlier estimate that the gross domestic product of the 16 countries using the euro fell 0.1 percent quarter-on-quarter after a 2.5 percent drop in the first three months of 2009.

“The worst is over for the time being,” the chairman of euro zone finance ministers, Jean-Claude Juncker, told reporters before talks in Brussels among his Eurogroup colleagues and the European Central Bank.

Second-quarter GDP was 4.7 percent lower than a year earlier, after a 4.9 percent fall in the first quarter.

“Shrinking times are over and the recovery can set in,” said Carsten Brzeski, economist at ING. “The recent data inflow indicates that the euro zone as a whole should leave technical recession in the third quarter.”

A plunge in inventories was the single biggest negative factor in the second quarter, subtracting 0.7 percentage point from the overall quarterly result. A fall in private investment took away another 0.3 percentage point.

But government efforts to support the economy with fiscal stimulus clearly bore fruit.

Household consumption and government spending added 0.1 percentage point each to the final outcome and trade contributed 0.7 percentage point as imports fell much more than exports.

“We had a small increase in consumption, so consumers probably benefited quite a bit from the scrapping bonuses for new car purchases,” said Juergen Michels, economist at Citigroup.

“And on top of that we also have an expansion of government expenditure, so this helped to limit the contraction in GDP in the second quarter,” he said.

RECOVERY SUSTAINABILITY

The euro zone’s two biggest economies, Germany and France, returned to growth in the April-June period, but the sustainability of the euro zone recovery remained uncertain.

Depleted inventories will have to be rebuilt, boosting production, while some economic revival globally is likely to boost demand for euro zone exports.

“However, some of the impact of the fiscal stimulus will fade before the end of the year,” said Nick Kounis, economist at Fortis.

“In particular, the boost to consumer spending from car sales will reverse, as the impact of the incentive scheme fades, and this is likely to pull the economy down temporarily in the fourth quarter,” he said.

Economists said the euro zone revival would most likely be driven primarily by exports on the back of a gradual improvement in the global economy, rather than domestic demand, which would remain under pressure from rising unemployment.

But that would likely mean a slow recovery.

“We doubt the euro zone economy might come back to solid and sustainable growth before mid-2010,” said Clemente de Lucia, economist at BNP Paribas.

“Foreign demand might not be strong enough to sustain export growth as demand from Britain, the U.S. and from central and eastern Europe is not forecast to pick (up) any time soon,” de Lucia said.

“Moreover, an excess of spare capacity, still poor demand and rising unemployment are likely to limit investment and consumption. Lastly, financial and monetary conditions are still relatively tight,” de Lucia added.

Economists said the GDP data would have little influence on the ECB’s interest rate discussions when the bank meets on Thursday amid market expectations of unchanged borrowing costs, now at 1 percent.

“We believe the ECB should be prepared to hold off from any exit strategy until it is clear that euro zone recovery is on firm grounds,” said Howard Archer, economist at IHS Global Insight.

Euro zone producer price data for July provided another reason for the ECB not to raise interest rates anytime soon.

Eurostat said prices at euro zone factory gates, which signal inflationary pressures early in the pipeline, fell 0.8 percent month-on-month in July for an 8.5 percent year-on-year drop.

Economists polled had expected a 0.6 percent monthly fall and an 8.4 percent annual decline.