German recovery signals Euro-upturn

GERMANY pulled out of recession in the third quarter of the year, sparking hopes of better times ahead for the 12-nation eurozone.

After shrinking by 0.4% in the first half of the year, Europe's biggest economy and former powerhouse grew by 0.2% in the July-to-September period. The expansion was driven mainly by a surge in export demand as the global recovery established a firmer footing.

As Britain's second biggest trading partner, Germany's return to growth is good news for the UK economy. Manufacturers at home have been suffering as overseas demand for their goods has dried up.

It will also be welcomed by Chancellor Gerhard Schroder whose popularity has taken a pounding because of the country's economic malaise.

Economists were cautiously optimistic about Germany's outlook, predicting a steady recovery rather than a bounce back. Andreas Rees at Hypovereinsbank in Berlin, said: 'The German economy was in reverse for the first half of the year, and the third performance shows that it has now moved into first gear.

'We expect to see it progressing into second gear in the fourth quarter of 2003 and the first quarter of 2004, but we don't see it moving into third or fourth gear thereafter.'

Neighbouring France also rebounded in the third quarter, expanding by 0.4% after contracting by 0.3% in the previous three months.

David Naude, economist at Deutsche Bank, said of the French figures: 'There is no question that we have turned a corner, but we are not yet at cruising speed.'

The French government is counting on growth of 0.5% at best this year, with an acceleration around year-end and a rebound that should lead to growth of 1.7% in 2004.

The euro was boosted by the double dose of good news, climbing almost half a cent against the dollar to $1.1685.

Good news for UK manufacturers

GERMANY'S economic malaise has been a major source of misery for Britain's manufacturers. As our second-biggest export partner after the US, accounting for 12% - or £22bn - of overseas business, Germany's woes have contributed to British industry spending much of the past two years in recession.

So a return to growth is good news not just for Germany, but for Britain too. George Buckley at Deutsche Bank said: 'The fact that Germany is out of recession is a positive signal. Export prospects for manufacturing look set to improve.'