Amid the worst economic recession and credit crisis since the great depression, the euro zone witnessed a severe recession since the second quarter of 2008 and till this moment the recession is still weighing on the economy.
Today, the European countries using the euro released their GDP for the second quarter showing that the economy contracted for the fifth consecutive quarter with 0.1%, but this contraction, however, was below analysts' expectations which were in favor 0.5% contraction.
The most noticeable data today were from Germany and France, the largest two economies in the Euro Zone, as both of them managed unexpectedly to achieve an expansion in the second quarter challenging all the difficult circumstances surrounding the economy from every where such as the decline in consumption along with the contraction among all sectors of the economy. PMI readings and production remained vulnerable for a long while; however, the GDP benefited from other areas which are government expenditure and inventories.
Still, we can not say that Germany and France are not in a recession as they still need growth for additional three or four quarters which means the largest two economies are still in a recession. The euro zone declined this quarter also but looking into the data released recently, it is obvious that the economy improved due to the stimulus plans by the ECB that succeeded in moderating the pace of contraction.
The upbeat data released today is providing evidence that the economy may recover sooner than the ECB's previous expectations of having a recovery in the second quarter of the coming year. Anticipations are now referring that the economy may grow again in the fourth quarter of the current year or at most in the first quarter of next year.
Figures are optimistic but other important data should be taken into consideration. Unemployment rate, for instance, is very high, while the inflation rate is very low, therefore the recession that the economy is suffering from may be a W shaped as the rising jobless rate and the fragile sectors may cause this possibility. Nevertheless, there are no enough clues that this might happen, especially as national governments and the ECB do not intend to change their fiscal and stimulus plans which might be supportive for the economy.
The euro zone will continue receiving help till the second half of the next year. Thus, today's data may be the first road toward getting out of the recession and the return of economic stability once again.
The Italian economy shrunk with 0.5%, while Lithuania marked the largest contraction among the EU27 showing a 12.3% contraction. This refers to that there are still some countries that are suffering from a severe contraction. Thus, we can not ignore these countries, especially as many EU16 countries are also witnessing considerable weakness.
All in all, today's data is considered the first sign of recovery that was significant in the biggest two economies in the euro region. But the more important question, so far, is whether this progress will continue in the coming period or no?