EU economy a mosaic of bright growth spots amid extreme gloom

A strong recovery in German and British industry has added new colours to a landscape evolving almost by the day showing resilient EU growth constrained by debt mountains and steep budget cuts.

Just released industrial production and trade data from around Europe has revealed encouraging growth potential in a still sluggish economy.

Many economists fear that in their zeal to curb overspending, EU governments have imposed harsh austerity measures that could ultimately snuff out a nascent rebound and trigger descent into a fresh recession.

But in a context of expanding global trade, there are now signs that manufacturers are again ramping up production to meet demand - mostly foreign - and in so doing are importing more, adding further dynamism to momentum.

The Organisation for Economic Cooperation and Development reported yesterday that stockbuilding - for the third straight quarter - was behind a 0.6 per cent pick-up in growth among the world's leading industrialised economies, which include many members of the EU.

Yesterday's figures meanwhile showed healthy gains in industrial output in Britain, Germany and The Netherlands, as well as in non-EU member Turkey.

Responding to keen foreign demand, notably in emerging market nations, German exporters cranked up their machines and enjoyed the biggest spurt in overseas sales in a decade in May, the national statistics office said.

Merchandise shipped abroad by the world's second-biggest exporter after China climbed by 28.8 per cent to €77.5 billion, the largest annual increase since May 2000, the Destatis office said.

Imports soared by 34.3 per cent to €67.7 billion in May, the biggest rise since January 1989, Destatis said.

As a result, the German trade surplus fell in May to €9.7 billion from a revised 13.1 billion the previous month, Destatis said.

The figures were a general sign of stronger trade in the second quarter of 2010, a development that might weaken later this year after inventories are restocked and government austerity measures to curb deficits and debt kick in.

But for the moment, according to Commerzbank economist Simon Junker, "the German economy is benefiting from the ongoing recovery of world trade."

"The emerging markets especially are showing a much stronger demand for goods."

On a monthly basis, exports gained a seasonally-corrected 9.2 per cent, while imports climbed by 14.8 per cent, Destatis said.

It was the biggest monthly rise in imports since the office began compiling seasonally-corrected data in 1990 and could point to stronger demand for intermediate goods used by German companies to make finished products, UniCredit economist Andreas Rees suggested.

"This in turn would signal that the underlying momentum in the industrial sector is still strong," he said.

Industrial production rose a better-then-expected 2.6 per cent in Germany in May compared with April and surged 4.3 per cent in Britain compared with May 2009, its strongest annual pace in nearly 16 years.

Output in The Netherlands rose nearly three per cent in the April-May period compared with February-March while in Turkey industrial production shot up 15.6 per cent in May from a year earlier.

But figures released yesterday are for the moment simply encouraging signs on the European horizon.

The harsh reality is that Europe began the year with tepid economic growth, even before governments launched tough budget cutbacks.

EU official data on Wednesday stood by a previous estimate that output by the debt-laden eurozone grew by just 0.2 per cent in the first quarter of 2010, following even weaker growth of 0.1 per cent at the end of 2009.