Germany sees recovery

Germany yesterday said it may have already emerged from recession, but an apparently promising drop in US weekly unemployment claims was dismissed as a distortion caused by auto industry layoffs.

In addition, falling sales at many US retailers in June and mixed May US wholesale data pointed to prospects for a slow economic recovery, helping to pare early gains in US stock prices.

Amid fresh signs that Germany had turned the corner, a senior German government official told Reuters that Europe's biggest economy may have emerged from recession in the second quarter, just as trade data showed exports making a tentative recovery.

"Gross domestic product could have been flat or may have even grown very slightly in the second quarter," the official said, speaking on condition of anonymity.

"This isn't an upswing yet, it's a normalisation after the big economic slump," the official added. The Federal Statistics Office is due to give a preliminary estimate of second-quarter GDP on August 13.

The number of US workers filing new claims for jobless benefits fell sharply last week, but the data were distorted by an unusual pattern of layoffs in the automotive industry, which amplified the decline.

June sales fell for most US retailers as the plunging job market and cool, rainy weather dampened interest in summer shopping, sparking fresh concern about the back-to-school season.

In a positive development, US wholesale inventories shrank in May for the ninth month in a row, falling to their lowest level since August 2007, government data showed. However, the drop was smaller than analysts had forecast.

Trade figures lent some support to hopes that the eurozone anchor is emerging from the worst global recession since World War II, recording a higher-than-expected surplus of €10.3 billion in May.

"We can't talk about a change in trend. But the freefall appears to have stopped. There is a lot to suggest that foreign trade supported the economy again in the second quarter," said Thorsten Polleit of Barclays Capital.

Despite some encouraging data and corporate results, doubts remain over the strength of any recovery, and leaders of the Group of Eight industrial nations meeting in Italy agreed it was too early to cut off economic aid - despite deep interest rate cuts and an estimated $5 trillion in public spending.

"All were of the view that the crisis is a long way from being over," said German Chancellor Angela Merkel. "With luck, we have reached the bottom," she told reporters in L'Aquila, where leaders of the United States, Japan, Germany, France, Britain, Italy, Canada and Russia held their annual summit.

The International Monetary Fund raised its 2010 global growth outlook but warned that neither the economy nor the banking industry was strong enough to do without heavy public spending and cheap central bank funds.