We’re on the mend but don’t pop the Champagne just yet

AFTER endless false dawns, economists now believe that the eurozone is back in business.

Economic data due to be released tomorrow is expected to show that the single currency’s economy edged back to growth in the second quarter after six quarters of contraction.

The economists believe that a year of relative calm on financial markets, budget cuts and economic reforms from Spain to Italy, and accelerating growth in the US, have helped the euro area start to recover from a downturn that pushed unemployment to a record 12.1pc.

At the same time, European Central Bank President Mario Draghi has described progress as “tentative” and said further growth may depend on repairing banks’ balance-sheets to spur lending.

France is in recession, Spain’s unemployment rate was at a staggering 26.3pc in the first quarter and Greece’s debt-to-GDP ratio stands at 160.5pc. Problems persist.

Here at home, we’re back in recession and unemployment is at 13.5pc. That may have eased back somewhat but we must not forget the numbers that have emigrated and left the workforce.

“The external environment is really getting better, led by signs that US demand is picking up,” said Nick Kounis, head of macro research at ABN Amro Bank in Amsterdam. “The second quarter should mark the end of the recession in the euro area, but the recovery will be excruciatingly slow. We’re not getting the Champagne out yet.”

But there is some evidence to be hopeful.

Economic data has confirmed the picture of a gradually improving economy, even in countries that have suffered the worst of a European sovereign debt crisis that is now in its fourth year.

Against that backdrop, the ECB has cut interest rates to their lowest-ever level and Mr Draghi has pledged they’ll stay there or lower for an “extended period”.

Spain’s economy shrank just 0.1pc in the second quarter from the prior three months and unemployment fell from the highest levels in the country’s democratic history.

Prime Minister Mariano Rajoy’s strategy of making it easier for companies to hire, fire and negotiate contract terms with employees helped the country generate a current account surplus of €2.4bn in May, compared with a deficit of €625m a year earlier.

In Italy, where Prime Minister Enrico Letta is easing last year’s budget austerity, GDP contracted a less-than-forecast 0.2pc from the first quarter.

Economic confidence in the euro area, as measured by the European Commission, increased for a third month in July.

But after enduring six quarters of recession, the scale of the crisis that battered the continent cannot be underestimated.

The true sign of improved conditions will be when unemployment drops and taxpayers begin to see real improvement on the ground.

Despite the increased optimism, that may yet be some time away.

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