LONDON, Nov 13 - Euro zone economic giants Germany and France both grew in the third quarter, data showed on Thursday, bolstering hopes the U.S. will not remain the sole engine of global growth. Europe's biggest economy Germany pulled out of its second recession in two years in the third quarter, expanding by 0.2 percent in the July to September period and the first growth since the same quarter a year earlier. The French economy, which narrowly avoided the first-half recession that ensnared Germany and Italy, expanded by 0.4 percent in the third quarter of 2003 and analysts expect figures from Italy due on Friday to show a return to growth there too. Germany and France together represent half the euro zone economy, third quarter growth figures for which are due on Friday. They are expected to show a return to growth after shrinkage of 0.1 percent in the second quarter. Some economists said they were looking at revising up their forecasts in the light of the latest figures. "We might have to raise our overall eurozone growth forecast for the third quarter to 0.3 percent from 0.2 percent," said Olivier Gasnier, Economist, Societe Generale. An Italian Treasury source said on Wednesday that it believed the economy there had escaped from recession in the third quarter and expected growth of 0.4 percent, above market forecasts. "With leaks on Italy ahead of GDP there, it looks like all three are back onto the growth track," said Stephane Deo, economist at UBS Warburg. The European Central Bank said on Thursday there were growing signs that the euro zone economy was recovering, but that inflation would not come down as swiftly as thought some months ago. The central bank left its benchmark interest rate unchanged at a record low of 2.00 percent last week.
GROWTH GATHERS PACE
A welter of strong economic data from the U.S., Japan and UK has suggested the global recovery is gathering pace but good news on the eurozone has largely been in the form of positive forward looking survey evidence rather than concrete data. Improved company earnings have also demonstrated that the upturn in sentiment is translating into growth in the real economy and European shares were buoyant on Thursday following on from a strong performance in the Japanese and U.S. markets. Markets are now on tenterhooks before the latest round of U.S. data due at 1330 GMT with attention focussed on the weekly jobless claims which are expected to confirm that the labour market is improving. "People are looking for good news on the economy and it looks like we are turning a corner," said Charles Berry, bond trader at LBBW. The French and German GDP figures were welcome hard evidence on an upturn, particularly after the International Monetary Fund on Wednesday again said the euro zone was not pulling its weight. "I see that business confidence seems to be mounting in Europe, but I don't see it being reflected in the actual numbers," IMF chief economist Raghuram Rajan told in an interview. "Confidence is a leading indicator, so you hope that might signal something about what's coming down the line, but the numbers have not been particularly encouraging." In September the IMF quipped that Europeans who wanted to see economic recovery would have to watch it on television. The eurozone economy is still likely to underperform relative to the world's other leading economies and its interest rates are expected to stay unchanged until the middle of next year to foster recovery. In contrast, Britain last week raised interest rates to keep growth under control. But analysts say that at least the worst case scenarios of total torpor in the single European currency region have not been realised.
Germany, which represents 30 percent of the eurozone economy has been the major drag on the region and even now, it is not expected to roar ahead. "We would say that the German economy was in reverse for the first half of the year, and the third quarter performance shows that it's now moved into first gear," said Andreas Rees at Hypovereinsbank. "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." Germany is still expected to post a contraction for 2003 as a whole, its first since 1993. Other figures on Thursday showed a pick-up in another part of the eurozone with the recession-hit Netherlands edging back into growth in the third quarter after nine months of contraction. Gross domestic product expanded 0.1 percent from the second quarter but shrank 1.1 percent year on year after contracting 1.2 percent in the previous quarter, the Central Bureau of Statistics said.//