(RTTNews) - The Eurozone economy emerged out of its worst recession since the second world war helped by the positive impact of stimulus measures adopted by member countries.

Eurozone expanded 0.4% sequentially in the third quarter, after contracting for five straight quarters, the flash estimate published by the Eurostat revealed Friday. Economists had expected the gross domestic product to grow 0.5% in the third quarter, following a 0.2% fall in the second quarter.

Meanwhile, the economy contracted 4.1% in the third quarter from the same period of previous year, while economists were looking for a decrease of 3.9%. The decline in the third quarter was smaller than the 4.8% decrease reported in the second quarter.

Given the annual decline, there is still a long road to recovery, Clemente De Lucia, economist at BNP Paribas said in a note. Survey data indicates that activity would continue to expand in the fourth quarter at a relatively solid rate. But, risks regarding the strength of the recovery in the medium term remain. “The recovery might fade next year once the effects of the one-off measures, which are currently sustaining demand, will not be felt any longer,” added Lucia.

In the third quarter, the EU 27 also emerged out of recession with 0.2% sequential growth. Annually, GDP slipped at a pace of 4.3% versus 4.9% in the second quarter.

Among the big-four euro area economies, Germany and France escaped from recession in the second quarter itself. Driven by exports and investment, the biggest Eurozone economy grew 0.7% sequentially in the third quarter, faster than the 0.4% in the second quarter. The French economy expanded 0.3% sequentially in the third quarter, at the same pace it grew in the second quarter.

Italy joined the team in the third quarter by growing 0.6% after contractions in past five quarters. Meanwhile, Spain remained stuck in recession in the third quarter as its GDP fell 0.3% sequentially.

According to Commerzbank analyst Christoph Weil, recovery is driven by the pick up in global demand and exports. Also, measures taken by a number of nations to stimulate consumption, especially the new-for-old car subsidies started taking effect and companies resumed the investment shelved abruptly in autumn 2008. For the year as a whole, a negative GDP figure of 3.8% is expected, followed by 1.5% growth in 2010.

The European Commission expects eurozone to grow in the second half of 2009 on strengthening global growth outlook. The 16-nation bloc is forecast to contract 4% this year. The commission sees a gradual recovery with GDP growing 0.7% in 2010 and around 1.5% in 2011. The commission raised its forecast for 2010 from the 0.1% fall predicted in the Spring forecast.

ING economist Martin van Vliet said the bounce in GDP was mainly due to government spending and a reversal in the inventory contribution. Still, the economy remains in a fragile state. “A sustained recovery is likely to require that consumer spending and business investment be the primary drivers of new economic activity”, noted Vliet. Moreover, even if the economy continues to recover at the current pace, it would still take until 2012 before real GDP returns to its pre-crisis level.

Elsewhere, UniCredit economist Aurelio Maccario assessed that the growth was led by net exports and inventories. Domestic demand remains the big weak spot for the region’s economy, the economist noted. The upswing is unlikely to gather further momentum in 2010, the economist said.

Yesterday, the European Central Bank in its monthly bulletin said economic activity is likely to improve in the second half of this year, though uncertainties remain high as a number of supporting factors are of a temporary nature. A week ago, the central bank left its key interest rate unchanged at a record low of 1% for a sixth month.

Respondents of the professional forecasters survey revised their growth outlook for 2009 significantly upwards since the last survey. They now expect real GDP to contract 3.9% in 2009, an upward revision of 0.6 percentage points from the previous survey. Growth expectations for 2010 and 2011 have also been revised upwards by 0.7 and 0.1 percentage points to 1% and 1.6%, respectively.

Economists at UniCredit remain convinced that the recovery in 2010 will remain subdued, with GDP growth unlikely to exceed 1%. They expect the ECB to upgrade its GDP forecasts in December, but does not anticipate any dramatic revision. “And while a gradual mopping up of excess liquidity seems warranted in the not-too-distant future, the refi rate should remain on hold throughout next year,” they said.

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