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imageBRUSSELS: The eurozone, led by Germany and France, on Wednesday finally escaped an 18-month recession which tested the single currency to the limit and imperilled global growth, but the debt crisis still clouds the outlook.

The European Commission was quick to warn that tough structural reforms, including unpopular austerity policies which many argue have helped contribute to the millions of job losses, must be pursued without let-up if the recovery is to last.

"There is still a very long way to go before we reach our ultimate goal of sustainable growth model that delivers more jobs," said EU Economic Affairs Commissioner Olli Rehn."

The 17-country eurozone, home to about 340 million people, grew 0.3 percent in the three months to June, topping analyst forecasts for 0.2 percent.

In the first quarter, the economy had shrunk 0.3 percent, extending the recession defined as two consecutive negative reports into a record sixth quarter.

The data, widely anticipated, left stocks slightly higher and the euro flat.

Behind the headline gains, other figures showed how much ground still needs to be made up the eurozone contracted 0.7 percent compared with the second quarter of 2012, the Eurostat statistics agency said.

Analysts expect the economy to shrink by around 0.5 percent for full-year 2013, slightly worse than the Commission's 0.4 percent forecast, followed by a modest expansion next year.

"A sustained recovery is now within reach but only if we persevere on all fronts of our crisis response," Rehn said.

Eurozone states must "keep up the pace of economic reform, regain control over our mountain of debt and build the pillars of a genuine economic and monetary union with no loopholes where irresponsible bankers or short-sighted policy makers can thrive," he warned.

In Germany, which faces polls in September, Chancellor Angela Merkel has made a virtue out of the need for austerity as an essential foundation for a return to growth.

France, however, has led calls to put the emphasis on growth and jobs, with the EU seeking to find a difficult middle ground between the two.

The data showed that Germany, Europe's powerhouse economy, grew 0.7 percent, while France expanded 0.5 percent, way ahead of forecasts for just 0.2 percent.

The French figures were the best since the first quarter of 2011 and significant given how the eurozone's second-ranked economy has struggled for momentum, burdened with heavy debt and an increasingly uncompetitive export sector.

Analysts positive but cautious:

Analysts were positive on the figures but cautious on the outlook the eurozone may be returning to growth but its performance is anaemic compared with other major economies and the debt crisis refuses to go away.

Unemployment too remains at a record high 12.1 percent and lurking in the background are concerns the debt rescue programme for twice bailed-out Greece could unravel.

The "indebted countries of the periphery are still mainly in recession and a very long way from the rates of expansion needed even to begin to eat into their enormous debt burdens," said Jonathan Loynes of Capital Economics.

"The eurozone's recession may be over for now at least but the debt crisis in the periphery is decidedly not," he said.

For Tom Rogers, senior economic adviser at EY Eurozone Forecast, the north-south divide remains a key concern, "potentially undermining efforts to deliver eurozone-wide solutions and further pressurising national governments."

Equally worrying, the pace of recovery in the strongest economies "is unlikely to be sustained in the second half of the year," Rogers said.

"More needs to be done if the apparent recovery of the past few months is to be more than simply a bright spot in an otherwise difficult few years."

In a separate note, Capital Economics said the growth data so far this week confirms a global uptick.

"However, growth at current rates will leave a lot of spare capacity and daunting debt burdens in many countries."

Other figures showed that the full 27-member EU grew 0.3 percent in the second quarter compared with the first when it shrank 0.1 percent.

Among non-euro members, Britain grew 0.6 percent, confirming recent stronger indicators.

Comparable figures for the United States and Japan came in at 0.4 percent and 0.6 percent, respectively.

The eurozone recession had been a drag on global growth, slowing down emerging markets as well, making it more difficult for European countries to rely on exports to lift their economies as reforms dented demand at home.

Copyright AFP (Agence France-Presse), 2013

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