Europe sees small signs of economic recovery

Companies are slowing the pace at which they've been slashing jobs and lending conditions are improving.

After more than a year of economic gloom, Europeans are returning to the shops and venturing back into the housing market. Companies are slowing the pace at which they've been slashing jobs. Lending conditions are improving. But central banks and some economists are cautioning against reading too much into all the recent data suggesting glimmers of a much-welcome recovery from the global credit crisis, warning about the possibility of a damaging "double-dip" recession. "There's good reason to be cautious," Ben May, European economist at Capital Economics in London, said Monday. "The surveys still aren't great, and in the hard data there hasn't been convincing signs of a pickup." Still, stock markets have risen and many recession-weary consumers appear to be focusing on reports such those out Monday showing that access to credit is improving and the rate of job-cutting is slowing in Britain, while business confidence rose in France. Economists are forecasting that the drastic plunge in growth for the 16 countries that use the euro will have slowed when figures for the second quarter are released on Thursday, to a 0.5 percent contraction compare to the quarter before - a significant improvement on the 2.5% plunge in the first quarter. In Germany, Europe's biggest economy, rising business and consumer confidence has been underlined by more solid signs of recovery such as solid month-on-month increases in exports and industrial orders. German exports - the economy's backbone - were up 7% in June, their biggest rise in nearly three years, although they were still down 22.3% on the year; industrial orders were up 4.5% in June, following a 4.4% rise in May. In Spain, the number of people filing claims for unemployment benefits fell for the third-straight month in July, the biggest monthly drop in claims since July 2004. And an 11% fall in car sales in the same month was seen as a major improvement - in a market seen as a key indicator - over the 30%-40% falls recorded in previous months. The relatively good news - compared to the economic woes reported almost daily in recent months - has prompted a rise in consumer confidence across Europe, resulting in an increase in retail sales and a tentative return by buyers to the housing market. Britain's Centre for Economics and Business Research predicts house prices will start rising again in 2010 after the precipitous falls caused by the credit crunch. "For a couple months there was an excessive fear, compared to the reality of the economy, and now people are realizing that things aren't really as bad as they had heard," said Marc Touati, an economist at Paris-based brokerage Global Equities. However, Touati and other analysts warned against celebrating any recovery too early, highlighting the risk next year of the second half a so-called double-dip - when a nascent recovery sputters out and turns into another recession. "The economy is moving in a good direction, but it's very fragile," Touati said. "We must continue to be very careful." Pierpaolo Benigno, an economist at the LUISS University in Rome, said there were two key stumbling blocks for any turnaround in the economy. "One is that unemployment is growing, and that probably won't stop in the next half," he said. "Also the rise in oil prices, which would reduce consumer spending." Italy, Europe's fourth-largest economy, officially entered recession in the third quarter of last year, and its economy shrank by a further by 6% in the second quarter of 2009 on a year-on-year basis. Britain's second-quarter figures on the economy also gave little reason for cheer, with gross domestic product contracting by twice as much as economists had forecast. GDP shrank by 0.8%, smaller than the 2.4% in the first quarter, but more than double the 0.3% average expected by economists. The Bank of England has been one of the most cautious on the outlook. It surprised markets last week by significantly expanding its program of buying financial assets to boost the money supply, a sign it thinks the economy may need more support. The bank noted recent conflicting data on the economy, saying financial conditions were "fragile" and that growth in the money supply "remains weak," as it explained its decision. The European Central Bank has been similarly reluctant to dwell on signs of recovery, with President Jean-Claude Trichet saying he remained "very prudent and cautious," despite the fact that the "pace of contraction is clearly slowing down." The positive data and the cautious interpretation is leaving some to scratch their heads. "I was let go in January, so money is obviously tight," said Ollie Foster, 27, a carpenter from Haringey in north London. "I'm not spending as much as I'd like, and you don't even know what to believe these days, so in any case it's better to be cautious."