France and Germany Lift European Economy

FRANKFURT — The European economy bounced back with unexpected strength in the second quarter after contracting sharply at the beginning of 2009, data released Thursday showed, offering the clearest evidence yet that a searing recession is drawing to a close.

The economy of the 27-nation European Union shrank at an annual rate of 1.2 percent in the three months that ended in June, while the 16 countries that use the euro, the common European currency, registered an annualized 0.4 percent decline in economic activity during the period. That contrasted with a shrinkage at an annual pace of 1 percent during the same period in the United States.

Despite being in negative territory, the European data underscore a sharp recovery from the first quarter of this year, when both the E.U. and the euro zone saw a 2.5 percent contraction, or a 10 percent annual rate. Underlying the surprisingly strong reading were solid performances in France and Germany, both of which grew by 0.3 percent in the second quarter, compared to the first, government data showed Thursday.

Germany, Europe’s largest economy, will still probably see its gross domestic product contract by about 6 percent for the full year, economists say. But the surprise expansion — most economists had expected a flat or slightly negative reading — underscores how German exporters are benefiting from growth in Asia and what may be a bottoming of the downturn in the United States.

“An export-driven, ‘V’-shaped recovery in the second half of this year is in the pipeline,” said Andreas Rees, chief German economist at UniCredit.

Germany’s economy expanded 0.3 percent from the previous quarter, ending a run of four straight quarters of contracting output in Germany, putting an end to the nation’s recession in its most technical sense. The modest expansion in the second quarter amounted to an annual growth rate of 1.2 percent.

News last week that German exports leaped 7 percent in June over the previous month foreshadowed a strong reading on gross domestic product.

But unemployment is expected to rise sharply later this year, as a raft of government programs that kept people on private payrolls begin to expire. Despite the recovery, German exports in June were down 22 percent compared to a year earlier.

The unemployment question is feeding a debate among economists about whether Europe will experience a V-shaped recession, or whether rising joblessness will drag down consumption and shake consumer confidence, leading to another dip later this year — a so-called “W-shaped” expansion.

“You might get something resembling a ‘W’ simply because of the strength of the rebound,” said Erik Nielsen, chief Europe economist at Goldman Sachs in London. “It’s almost mathematical after the deep trough.”

The year 2010 will be much more uncertain, and could find Europe lagging behind the United States, where recent data indicated that the recession may have ended. Despite the passage of bank rescue plans and modest stimulus packages, Europe has generally failed to restructure its financial system, most economists argue, portending greater problems next year.

“We will really see the difference in recoveries next year,” said Thomas Mayer, chief Europe economist at Deutsche Bank in London. “That will be when the U.S. bounces back more quickly than Europe.”

By CARTER DOUGHERTY