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US economy still shaky; France, Germany show life

Fresh data on Thursday dented hopes the US economy is on the verge of a strong rebound, even as Western Europe's two largest economies reported a surprising return to growth in the second quarter. Many pundits had expected the United States to lead the global economy out of recession, but the world's largest economy was soundly beaten to the punch as its retail sector struggled to lure skittish consumers.  

Massive job losses and sharp declines in the housing market have prompted many Americans to pare back spending. US households are “in no position to drive a decent economic recovery,” said Paul Dales, economist at Capital Economics in Toronto.

But prospects for a US recovery got a boost from news that hedge fund manager John Paulson, who made a fortune betting against financial companies in 2007, had bought shares of selected banks and drug makers.

And prices for copper, a key industrial material, jumped to fresh 2009 highs on a brighter global demand outlook.

An unexpected rise in second-quarter GDP in Germany and France, pillars of the euro zone economy, boosted financial markets, which are still fretting over the potential for a global economic pickup.

German Economy Minister Karl-Theodor zu Guttenberg was cautious about the figures. “There are no grounds for euphoria, because we're still a long way from seeing the economy back at the level that it was at last year.”

Europe's recovery will likely be patchy at best, with Britain, Italy and the Netherlands still weak and parts of Eastern Europe, which rely heavily on exporting to the wealthier western nations, reporting a far gloomier outlook.

GDP in the euro zone fell in the second quarter, albeit by a marginal 0.1%.

Germany and France emerged from lengthy recessions in April-June, with their gross domestic product rising 0.3% quarter-on-quarter. The much smaller Portuguese and Greek economies matched that growth.

The surprising German data came just weeks before its citizens head for the polls. The country's jobless rate fell in July for the first time in nine months.

“It looks like the recession's over. We're entering a phase of stabilization and slow growth,” Christian Dreger at the DIW Institute. “The main risk for Germany is a sharp rise in unemployment.” (Reuters)