The worst is over for the euro zone economy but it is too early to withdraw fiscal help, top European economic officials said on Wednesday as data showed the area's worst recession since World War Two could be ending.
The European Union statistics office confirmed that the gross domestic product of the 16 countries using the euro fell only 0.1 percent quarter-on-quarter in the April-June period after a 2.5 percent drop in the previous three months.
"The worst is over for the time being," the chairman of euro zone finance ministers, Jean-Claude Juncker, told reporters before a meeting of the ministers and the European Central Bank.
Japan is technically out of recession with 0.9 percent quarterly growth in April-June, but the economy of the United States shrank 0.3 percent on a quarterly basis in the same period.
Economists believe that after large destocking in the past quarters, euro zone firms will start rebuilding inventories in the second half of the year, boosting production. A gradual revival of global demand should help euro zone exports.
"Shrinking times are over and the recovery can set in," said Carsten Brzeski, economist at ING. "The recent data inflow indicates that the euro zone as a whole should leave technical recession in the third quarter."
But the data showed that second-quarter GDP had been propped up by euro zone fiscal stimulus, which boosted government investment and household demand.
Juncker said it was too early to end the state support.
"The time has not yet come to withdraw the fiscal stimulus. We have to continue this effort in the course of this year and next year, then we have to agree on an exit strategy," he said.
Finance ministers of all 27 European Union states are likely to send a similar message at the end of their meeting later on Wednesday and present it to ministers from the Group of 20 industrialised and emerging countries at discussions on Sept. 4-5 in London, sources close to the EU talks said.
When the time comes to curb government help, which includes cash incentives to swap old cars for new ones and guarantees for banks, the effort should be coordinated globally within the G20 for maximum effect, officials said.
"The exit strategy from this crisis should be coordinated, first of all at the European level and of course also at the global level. We will discuss this at the next G20 meeting in London," EU Economic and Monetary Affairs Commissioner Joaquin Almunia told reporters before the ministers' meeting.
British Prime Minister Gordon Brown also called on Tuesday for greater international coordination to ensure the world economy returned to sustained growth after the financial crisis.
EXIT STRATEGIES
Governments across the world have spent trillions of dollars on economic stimulus packages, prompting a debate about how eventually to remove this support.
Economies could slump again if the stimulus is removed too soon, but inflationary pressures could grow if it is left in place too long.
British finance minister Alistair Darling said on Wednesday that the G20 finance ministers should focus their talks on ways to help secure recovery in the world's economies.
In a letter to his G20 colleagues, Darling proposed that policymakers focus on "the current macroeconomic conjuncture and further responses needed to secure the recovery".
Germany called on other EU countries this week to start withdrawing state help as soon as the recovery takes hold, and Dutch Finance Minister Wouter Bos said on Wednesday an exit strategy was needed to protect the value of the euro.
But French Economy Minister Christine Lagarde told Reuters in an interview on Tuesday the economy was not yet out of the crisis and so it was too early to remove stimulus measures.
"The crisis is not over. We are still encountering significant difficulties and one clear sign of that is the unemployment rate in all our countries," she said.
She said France would examine its stimulus package to see whether any of the measures needed to be adjusted.
Sources close to the EU ministers' meeting said the 27-nation bloc was likely to discuss only in early 2010 when and how quickly to rein in government stimulus.
EU ministers are also likely to push at the G20 this week to change the culture of bankers' bonuses, which some believe helped cause the excessive risk-taking by financial institutions that led to the global financial crisis.
"The bankers are partying like it's 1999, and it's 2009," Swedish Finance Minister Anders Borg, whose country holds the European Union presidency, told reporters.
But some said it would be a challenge to persuade Britain to sign up to strict limits, as proposed by France.
