Europe Shuffles Behind US Economic Surge

Nobody knew how long it was going to last.

The economic devastation the terrorist attacks in the United States wreaked on the world economy was expected but nonetheless shocking. US, European and Asian stock markets slid, growth predictions were halved or further reduced, economic slumps were confirmed – including in Germany. Recovery predictions seemed light years away.

But last week things turned around, if only a little bit.

Surge in the US, European stocks look good

Figures released at the end of February and beginning of March revealed an unexpected manufacturing surge in the United States and an economy more active than anyone had suspected. US growth in the last quarter was measured at 1.4 percent, far above the 0.2 percent initial estimate.

The figures coincided with European survey revealing similar, if less dramatic, surges in manufacturing. The good news went further: on Monday, European stocks rose in the Dow Jones Stoxx 50 index, further evidence that the slumping economies of European countries like Germany and Great Britain could be on the verge of a turn-around.

"Normally when you have a US rebound, Europe follows quickly," Geoffroy Goenen, a manager at Dexia Asset Management, told Bloomberg news.

Whether Germany will follow as quickly remains to be seen. Miserable economic forecasts at the end of 2001 have been buoyed by hopes that the summer, and expected economic recovery, is not far away. German Finance Minister Hans Eichel has maintained that the country’s economy, the third-largest in the world, will recover within the year.

His words seem to have had some effect. Germany’s leading economic institute, Ifo, reported last week that German business optimism is rising. And among the winners on the stock exchange Monday was German electronic powerhouse Siemens AG, where shares rose by 2.83 euro to 71.73 euro.

But there is no reason for jubilation. Figures released last week confirmed that Germany posted two quarters of negative growth last year, a sign of recession.

"The current situation is still considered much worse than in the period preceding 11 September 2001," according to the Ifo’s February report.

The European Central Bank has not given any hope that it would contribute to a quick recovery, cutting interest rates only four times in the past year, as opposed to 11 by America’s Federal Reserve Bank.

The dramatic effect the US economic slump has had on Germany have renewed appeals for structural reform in the social democratic country.

Thomas Straubhaar, of the Hamburg Institute of Economics, told the Frankfurt Allgemeine Zeitung newspaper that Germany needs to undergo change in its health and economic sectors.

His take on hopes Germany will follow the America's surge?

"Bad for Germany."